Siemens Energy’s vicious circle becomes virtuous
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Yawen Chen
LONDON, Nov 13 (Reuters Breakingviews) -Siemens Energy’s ENR1n.DE latent promise is finally coming to the fore. Between January 2021 and October 2023 the $35 billion German group’s shares fell nearly 80% as supply chain disruptions and its own missteps made a mess of its Siemens Gamesa unit, which makes wind turbines. But since then the value of CEO Christian Bruch’s company has risen over five times, including a 20% bump on Wednesday as he unveiled punchy growth targets to 2028. Despite that surge, the group may still be undervalued.
For a long time last year, Siemens Energy’s shares moved in tandem with offshore wind power producers like Vestas VWS.CO, as inflation and supply chain delays hobbled the industry. Quality issues with its large wind turbines added insult to injury. While Bruch expects Siemens Gamesa to keep bleeding cash in the next couple of years, the rise of artificial intelligence and demand for data centres has supercharged demand for the company’s two other key segments focused on power grids and gas services.
With a backlog of orders amounting to 123 billion euros, Bruch now expects sales to grow much more quickly through 2028, with his operating profit margin hitting 10% to 12% compared to 1% now and a previous guidance of 8%. Assume Siemens Energy manages to grow its top line 10% each year under Bruch’s “high-single-digit to low-double-digit” guidance, and an operating profit margin of 11%. Siemens Energy would fetch 5.6 billion euros in 2028 operating profit, 1.3 billion euros more than forecasts currently compiled by Visible Alpha. Given its 2.9 billion euros in net cash, the company would trade at 6.2 times its 2028 operating profit, even after factoring in Wednesday’s bump.
That makes Siemens Energy much cheaper than the 16 times multiple for 2028 sported by bigger rival GE Vernova GEV.N, as well as data centre darling Schneider Electric SCHN.PA, on Visible Alpha data. The discount may reflect lingering concerns about what happens next with wind. But the more investors see that Bruch occupies a decent niche in the electrification megatrend, the more likely his previously vicious cycle will keep turning virtuous.
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CONTEXT NEWS
Siemens Energy upgraded its 2028 targets on Nov. 12, forecasting a profit margin of 10% to 12%, up from at least 8% previously.
It also forecasts annualised revenue growth through 2028 will be “high-single-digit to low-double-digit”, up from mid-single digits previously.
Siemens Energy’s Frankfurt-listed shares rose as much as 20% in morning trading on Nov. 13. As of 1428 GMT on Nov. 13 they were trading at 44.4 euros, up 14%.
Graphic: Siemens Energy shares have rebounded sharply https://reut.rs/4hOFfmS
Editing by George Hay and Oliver Taslic
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