Short-term concerns regarding the supply chain situation and China’s growth have weighed down Vestas’ share, resulting in a lukewarm start to the year.

The market fears that not even 2023 will be the year that sees Vestas improve earnings margins despite diminishing costs, according to an assessment carried out by investment bank Jefferies ahead of the publication of the Danish turbine manufacturer’s annual report, set to be released in February.

Throughout 2022, the company has been heavily impacted by rising costs of raw materials and logistics, among other factors bearing down on its earnings capacity. 

Vestas expects an EBIT margin before special items of approx. 5% in 2022.

The market is especially focused on the operations forecast when Vestas releases the Q4 report along with the full 2022 report on Feb. 8.

”Management will remain cautious about the margin forecast given that there are still uncertainties ahead and especially in the first half of year as a result of improvement in supply chains and in China,” Jefferies states.

Uncertainties in relation to China and the supply chains are considered temporary, however -- though the question remains how long such challenges will persist. The market will know more on this after Vestas releases its 2023 guidance in connection with the annual accounts.

The turbine maker’s guidance could prove the last straw leading investors to scout further ahead in the hopes of improvement, thus potentially weigh down on the share price, writes Jefferies.

Effect of subsidies

Last year, the US government approved the Inflation Reduction Act, which comes with subsidies for renewable energy projects, and there are talks of similar legislation in the EU.

Jefferies raises doubts about whether the legislative packages will have the desired effect. Conversely, analysts note that these subsidies are far more than extensive than those of the past.

”State subsidies and tax breaks should support the financials of the projects and the scalability in production capacity. Most importantly, there is a strong focus on construction permits, which remain the primary bottleneck in Europe.”

Despite risks of delays in constructing wind projects, Jefferies highlights energy security and energy independence as topics which are here to stay.

Jefferies has a ”buy” recommendation and settles on a target price of DKK 254 for the Vestas share, which ended 0.5% higher at DKK 202.05 as trading closed on Friday.

(Note: Quotations translated from Danish)