We were intrigued to see Vestas’ (VWS:DC) share price soar 20% since the end of 2012. That hard-to-ignore price performance, combined with the awesome amount of restructuring completed by the company in 2012 motivated us to meet with the IR.
Most of the discussion was about how the company had thrown the kitchen sink at last year’s financials to pare down costs as much as possible. We’ve heard this from Vestas management so many times over the past few years that it’s surprising that there was so much more cost cutting possible.
But one point struck home – the company claimed their capex would fall further in 2013 from 286M€ last year (when capex was 62% lower than in 2011) to as little as €150 million this year, despite a key future offshore development: the V164-8.0 MW turbine. The first prototype of this next-generation turbine, with a 164m rotor diameter and projected 25 year operational lifespan, is due to be released in Q2 2014. Given all of the mechanical, financial and eventual marketing challenges in the offshore sector, this funding level now seems unreasonable. On top of this, 2013 will also see the company restructuring and reorganizing its production process.
Interestingly, the winds around Vestas have again whistled around a strategic partnership with Mitsubishi. The mere rumor of discussions with the Japanese giant has forced Vestas to communicate that talks were ongoing. When we asked for some precision, they gave none and only mentioned a ‘strategic partnership’. Help from a behemoth like Mitsubishi in the potentially booming offshore market of Japan could certainly explain why Vestas’ projected capex can stay so low.
Mention of Mitsubishi has also strengthened the case for Vestas becoming a takeover target. Oddly, and perhaps ominously for Vestas, Mitsubishi has just announced it wants to take 10% of the offshore market with its own technology, a 7 MW offshore system using an hydraulic drive train to be developed in the future. Well, what if the strategic partnership talks between Vestas and Mitsubishi evaporate into thin air? What if Mitsubishi is really planning to become a Vestas competitor? Vestas would be left to develop the tough offshore market alone, and might be forced to raise that low capex guidance.
The lack of a takeover lurking in the wings is another reason to be cautious …or even to step aside after this huge share price appreciation until we hear the news of a good order intake.