The Wind in Spain is Mostly in GAMESA

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by Debra Fiakas CFA

In the second week of November 2015, GAMESA Corporation (GTQ1: Berlin, GAM: Madrid, or GCTAF: OTC), Spain’s wind turbine manufacturer, reported double the net profit in the nine months ending September 2015, on revenue that was 30% higher than the same period last year.  During the period GAMESA has received orders from customers in twenty-five different countries for wind turbines with generating capacity of 2,841 megawatts.   Backlog at the end of September 2015 was 3,034 megawatts, representing a 43% increases over backlog a year ago.  At a time when some companies are struggling amidst weak demand, GAMESA’s success stands out.

Part of GAMESA’s good fortune appears to be the result of an expanded product line.  The company introduced a new 2.5 megawatt turbine for low winds earlier in the year.  The first turbine in a 3.3 megawatt family is to be launched at the European Wind Energy Association event in Paris in late November.  The broader selection of size seems to have given GAMESA better reception in markets like Canada, South Africa and northern Europe, where onshore wind energy projects are underway.

GAMESA has a solid presence in the U.S. market with an installed base of 4,150 megawatts across the continent.  Sales the U.S. accounted for 15% of total sales in the first half of the year.  The company’s most recent sale in the U.S. was for a wind project in New York to will rely on thirty-seven of GAMESA’s 2.1 megawatt turbines to generate 78 megawatts of total power.  GAMESA also has a joint development agreement with renewable energy giant SunEdison (SUNE:  NYSE) to jointly develop wind projects totaling at least one gigawatt of power.

Strong sales and higher profit margins have generated strong cash flows.  GAMESA has been able to pay down debt.  During the year the company has used Euros 238 in cash to reduce net debt to Euros 70 by the end of September 2015.  Management’s focus on deleveraging the balance sheet has not left shareholders in the cold.

The company recently reinstated a dividend and pledged to pay out 25% of profits.   The company paid Euros 23 million to shareholders in the September quarter.  The current forward dividend yield of 0.6% may not be impressive, but it is encouraging that the company has been able to reinstate a dividend.

Taking a position in GAMESA by U.S. investors requires stepping out to the Madrid or one of the German exchanges.  Most U.S. brokers have layered on sufficient platform services to facilitate trading securities in listed on exchanges in outside the U.S.  A position in GAMESA gives shareholders a stake in a leading wind turbine manufacturer with sufficient strength to serve the world market.  The stock has moved higher in the year and is not the beaten down bargain it was a few months back.  However, the stock is still trading at 25 times trailing and 19 times forward earnings, representing potential upside of 38% even without valuation expansion.  

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

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