Turbine Orders Will Spark Service Expansion In Europe

Key Takeaways

• Robust order book growth and strong turbine orders forecast significant sales and revenue potential for Nordex.
  
• Strategic diversification in supply chains aids in mitigating geopolitical risks, stabilizing margins, and potentially improving earnings.
  
• Delays and geopolitical risks, along with inflationary pressures, could affect Nordex's revenue timing, cost structure, and profitability.

Catalysts

Develops, manufactures, and distributes multi-megawatt onshore wind turbines worldwide.

• Nordex's order book growth, marked by a 21% increase and strong turbine order intake, indicates robust future sales and revenue potential. This can drive revenue growth as these orders are fulfilled.
  
• Improvement in profitability, evidenced by a 53% rise in EBITDA and an increased EBITDA margin, suggests operational efficiencies that are likely to improve net margins over time.
  
• Expansion of the service order book by 37% year-on-year to €5.2 billion reflects ongoing growth in the service sector, which should steadily contribute to revenue and profitability given the high margins in service operations.
  
• Increased activity and expected expansions in key markets like Germany, with anticipated auctions, and steady growth in Europe suggest substantial future revenue generation opportunities.
  
• Nordex's strategic focus on maintaining diversified supply chains and optionality in sourcing strategy should help mitigate geopolitical risks, leading to stabilized operating margins and potentially improved earnings.

Nordex Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nordex's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.4% today to 3.6% in 3 years time.
• Analysts expect earnings to reach €317.5 million (and earnings per share of €1.34) by about May 2028, up from €29.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €351 million in earnings, and the most bearish expecting €259 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.8x on those 2028 earnings, down from 130.7x today. This future PE is lower than the current PE for the GB Electrical industry at 34.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.88%, as per the Simply Wall St company report.

Nordex Future Earnings Per Share Growth

Risks

• There is a risk of customer delays due to permitting issues, specifically in Germany, which can delay installations and revenue recognition, impacting overall revenue timing.
  
• Inflation remains a concern within their service business, and the company acknowledges difficulty in accurately forecasting future inflation, which could impact net margins.
  
• There is a potential for increased local inflation driven by U.S. tariffs, which could affect local execution costs such as labor and transportation, potentially impacting net margins.
  
• Despite growth in their order book, the lead time for executing projects in Germany is longer than expected, potentially affecting the timing of revenue recognition and cash flow.
  
• The company's increased reliance on turbine assembly in China poses geopolitical risks and potential tariff implications that could impact their cost structure and profitability.

Valuation

• The analysts have a consensus price target of €19.077 for Nordex based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.6, and the most bearish reporting a price target of just €14.9.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €8.8 billion, earnings will come to €317.5 million, and it would be trading on a PE ratio of 16.8x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of €16.49, the analyst price target of €19.08 is 13.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.