A company that was facing a completely historic crisis, with a total breakdown of its accounts and which requested a bailout from Germany, now reigns with total supremacy on the continent’s stock exchanges. Siemens Energy surprises everyone. A year ago, a huge hole in its wind business, Siemens Gamesa, with huge losses, triggered a real stock market flight with a drop that reached 70% at its lowest in 2023. Although it is still burdened with losses that will continue until 2026, according to the company, the company has passed a point of no return. Not only has it completely recovered, but the company will skyrocket by around 178% in 2024, to 32.65 euros per share and 23.63 billion euros in capitalization. This month alone it has already been revalued by 26%.
The reality is that the company has not only already clearly recovered from its big crisis of 2023 with the wind sector, but is already threatening its all-time highs in 2021. there are only 2.5% left to achieve this. This completely drastic turn of events comes after a lot of pain, and getting there required a perfect storm in its core businesses (and for different reasons) to conspire to benefit the company. It is no longer just that there is a light at the end of the road, but that the company has entered a high-potential phase so quickly that many analysts are quickly raising their rating in order to monitor its performance on the trading floor. markets.
The “wind hole” in Spain seems to be on the right track
First, a decisive factor is that the wind crisis in its accounts is easing. This was his great burden and what happened was precisely a combination of blows that transformed his sector into a nightmare overnight. To understand this crisis, you need to understand how the wind industry works. These companies accept contracts to develop large wind farms. To face these projects, companies launch a powerful investment in exchange for profitability which comes through energy purchase contracts long term (PPA).
The problem is that this profitability is already fixed, but companies in the sector have found themselves with a supply crisis, higher costs in wages and materials and, to top it all off, higher debt costs , due to a sharp increase in costs. interest rate by the ECB. Due to the very nature of the projects, with large initial investments which promise future profitability, debt plays an essential role which makes the movement of central banks on these companies even more harmful. For their part, many of these companies did not even include any protection against inflation in their contracts.
It also had a big impact on projects that represented the sector’s big bet, offshore wind. These plans are generally more complex and have longer durations, leaving you fully exposed as you move from profitable projects to profitable projects. a loss hole for the company. However, companies in the sector have bet on offshore wind, because it is one of the countries’ big bets to increase their renewable capacity.
This had a very clear impact for Siemens Energy, in particular for Gamesa. In this case, it was also mixed with various wind turbine failures which ended up seasoning the crisis, transforming a company drowning in difficulties into a trail of losses. When the multi-billion euro impact became known, the company the stock market collapsed by 30% in a single daythe biggest setback in its entire history. This led to Germany having to rescue the company with 7.5 billion euros in guarantees for the banks. All this to avoid the losses of Gamesa which increased the red figures of Siemens Energy (its parent company) to 4.5 billion dollars, or 10 times more from one year to the next.
However, even if the situation remains full of dangers, the reality is that this front, at the origin of the stock market chaos, seems to be stabilizing. Price stabilization appears to have occurred when the European CPI was already calm and, in the case of German, at 1.6%. For its part, the ECB has already started to reduce interest rates, which is helping to alleviate the problems caused by the wind sector in general.
In the case of Siemens Energy, Bloomberg Intelligence analysts explain that “Gamesa’s financial recovery assumptions, with a balance sheet forecast for 2026 provides some clarity“. In any case, they recognize that they continue to see “uncertainty” in the company’s wind unit. Of course, we are already far from the real crisis that it experienced a year ago.
The company was able to see how the wind segment saw orders fall in a process of giving up market share to achieve greater profitability and reduce losses. Specifically, the company itself announced in its August figures that has already managed to reduce the hole to 1.262 millionor 66.5% less. At the quarterly level, the red figures were already 450 million, or 82.5% less. Something that has allayed market fears by indicating that this is already going in the right direction.
To do this, it was entrusted with its CEO, Christian Bruch, who was renewed last week until 2030. “Christian Bruch has led Siemens Energy through periods of turbulence,” defended Joe Kaeser, president of board of directors. “The challenges have reached their peak with the total acquisition of the wind business”. The company now believes that it can resolve the crisis with a total restructuring of the business in 2026… But while this is happening, much to the relief of investors, there is another front that has filled them with optimism.
“Relaunch” the gas business
While the wind business is becoming less and less scary, gas turbines have filled the business with euphoria. With the rise of data centers and rapid electrification of many companies in Germany and all over the world, there is a huge demand for both gas turbines and their power grid technology. Two factors that push their accounts towards profits.
The German manufacturer is seeing an increase in offers from large operators who are considering the possibility of building their own installations in the face of this potential frenzied energy consumption, explained Christian Bruch during the presentation of the results. According to their estimates, data centers can consume up to 1 gigawatt of electricity per year. This is equivalent to supplying 750,000 homes.. A new “boom” in gas demand which boosts company profits.
“Some are calling for renewable energy sources, but many are interested in our gas turbines for reasons of speed of development,” Bruch said during the conference call with journalists. Supplier demand is strongest in the United States and the Middle East.
Either way, it’s not just about data centers, but a wide variety of new sources of demand through electrification. “There is strong growth in electrification and good momentum in every business,” Bruch said in an interview with Bloomberg. “As demand for electricity increases, we see new markets emerging, such as data centers.”
One example of this is what the company itself announced in May. At the time, forecasts were revised upwards because governments were renovating aging infrastructure and improving grid connections for renewable energy projects. A segment in which the company is growing strongly and, according to the Financial Times, hopes to invest 1,200 million euros.
The improvement in its gas and networks activities allowed its turnover to increase by 19% to 8.8 billion euros, exceeding the average forecast of 8.630 million euros. But these companies are not only generating significant new business, they are also crucially improving their profitability. According to Bloomberg Intelligence, they expect “segment margins to continue to trend above estimates, while volume demand and pricing support revenue gains through 2026 that outpace those in the industry.” “.
“The major profitability and major role of gas in decarbonization supports our thesis that medium-term margins of 10 to 12% are within our reach.”
In this sense, they emphasize that the gas sector “has returned to a potential of 12% margins”. To understand the significance of this resurrection of Siemens Energy’s gas business, its margin has not exceeded 10% since 2017. “Unrivaled profitability and the role of gas in decarbonization support our thesis that the upper end of activity medium-term margin of 10% to 12% is at hand.”
This boom, unexpected for many, allowed the company to prepare for a return to profit. The company made a provisional profit of 108 million euros in the first quarter of the year only to record losses of 102 million again in the second. Yet the image is of a company that is already beginning to rebuild itself. Indeed, the company has already announced that it hopes to return to profit during this same financial year with a positive 1,000 million euros. The consensus of Bloomberg analysts expects it to post profits in 2024 and 2025, although not as much as the company reported, they expect it to stay at that level. adjusted net profit of 1,160 million this year, to rise in 2025 to 560 million and, finally, return to 1,300 million in 2026 already restructured. If we succeed this year, we would be facing the first year of profits of 2019, when it barely reached 282 million euros.
These growth prospects added to a crisis which seems to be easing significantly have led Deutsche Bank to raise its its price target at 31 euros. According to the company itself, “everything suggests that the Gas and Network divisions are showing positive signs both in terms of volume and price.” For their part, the experts stressed that “the industry is in the early stages of an accelerated investment cycle” both for the energy transition and for Siemens data. A paradigm shift so that Siemens Energy is “well placed to benefit”. In any case, he was cautious, recalling that the recovery will extend over the coming years. However, he expects the company to progress towards a 10% Ebitda margin in the second half of the decade, generating “strong financial performance”.
