c Nordic Capital Goods 08 June 2004 Sector Update Sector view: Wind Gauge NEUTRAL Growth will come – what about profitability? We have made only minor revisions to our market forecasts – we now expect growth of 2% in 2004 and 31% in 2005 (assuming the extension of the PTC). We remain confident about the long-term growth prospects, with several projects under development in new markets such as Mexico, Taiwan, the Czech Republic, Bulgaria, Hungary and South Korea. The tough competitive landscape is not set to improve – Gamesa and GE VESTAS Wind are moving rapidly into new markets – and it could be further UNDERPERFORM aggravated by a new round of industry consolidation (Bonus and HIGH RISK DKK88 Repower are up for sale). Peter Rothausen +45 32 88 03 20 We expect Vestas’s sales(04) to come in at the low end of the guidance [email protected] range (EUR2.7bn), but see it falling short of its 5% EBITA guidance (Carnegie: 4%). There is downside to our numbers if US sales do not materialise. We keep the UNDERPERFORM rating. There is huge uncertainty about Vestas’s future profitability and short-term earnings capabilities; there is also a high risk relating to the integration of NEG Micon. The premium valuation (19–20% on 2005e earnings) to the Engineering peer group is unjustified. Please see disclosures at the back of this report Carnegie Securities Research Sector Update Wind Gauge Valuation Change (%) in valuation since 21 January 2004 (last wind gauge) Ch. in EV/EBITA (%) Ch. in Adj. P/E (%) 2003 2004e 2005e 2003 2004e 2005e Vestas n.m. 3% 37% n.m. 1% 32% Gamesa *) 39% 35% 20% 30% 26% 18% Nordex n.m. n.m. n.m. n.m. n.m. n.m. Repower *) 187% 126% 87% 106% 47% 17% Ch. in EBITA (%) Ch. in Adj. EPS (%) Price ch. 2003 2004e 2005e 2003 2004e 2005e Vestas n.m. -7% -24% n.m. -16% -36% -6% Gamesa *) -4% 0% 13% 6% 9% 17% 37% Nordex n.m. n.m. n.m. n.m. n.m. n.m. 0% Repower *) -48% -35% -21% -55% -37% -22% -8% Current multiples (x) EV/EBITA(x) Adjusted P/E(x) PEG EPS CAGR 2003 2004e 2005e 2003 2004e 2005e 2003e (2003-05e) Vestas 59.2 13.4 10.9 Neg. 20.5 15.4 n.m. n.m. Gamesa *) 14.6 11.8 10.2 13.8 11.8 11.0 1.12 12% Nordex n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. Repower *) 9.9 7.9 5.7 14.5 10.3 7.5 0.37 39% Average (simple) 27.9 11.0 9.0 14.1 14.2 11.3 0.75 26% Relative to Vestas Vestas 1.00 1.00 1.00 n.m. 1.00 1.00 n.m. n.m. Gamesa 0.25 0.88 0.94 n.m. 0.58 0.71 n.m. n.m. Nordex n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. Repower 0.17 0.59 0.53 n.m. 0.51 0.49 n.m. n.m. Consensus valuation Vestas 32.8 16.8 10.5 38.3 25.3 13.5 0.56 69% Carnegie relative to consensus Vestas n.m. 0.80 1.04 n.m. 0.81 1.14 n.m. n.m. Nordex n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. *) consensus estimates from JCF Quant. Source: Carnegie Research and JCF Quant Stock performance (%) Stock performance (%) Price Curr. 21-Jan -1W -1M -3M -6M -12M YTD Vestas * 87.0 DKK -6% 6% 10% -15% 14% 32% 0% Gamesa 12.9 EUR 37% 5% 12% 14% 56% 102% 48% Nordex 0.95 EUR 0% 10% 13% -18% 19% -12% 42% Repower 18.5 EUR -8% 2% 3% 6% -4% -11% -3% Developers Energiekontor 1.64 EUR -25% 2% 1% -31% -34% -84% -29% P&T Technology 0.30 EUR -33% -3% -33% -45% -12% -96% -30% Plambeck Neue 2.32 EUR 4% 17% 5% -16% -28% -76% 5% Umweltkontor 0.94 EUR 3% 45% 38% -7% -30% -67% 4% Average (simple) -3% 10% 6% -14% -2% -26% 5% DJ Euro Stoxx 250.5 -1% 2% 1% -4% 18% -35% 3% * Correction factor 0.90 Source: Carnegie Research and JCF Quant 08 June 2004 2 Carnegie Securities Research Sector Update Wind Gauge Peer group: Engineering P/E (x) EV/EBIT (x) PEG (03) EPS gr. 2003 2004e 2005e 2006e 2003 2004e 2005e 2006e CAGR 03-05e Assa Abloy 27.913.912.711.440.515.913.111.50.5848% Atlas Copco 15.7 13.6 12.1 11.6 11.3 10.3 8.7 7.9 1.15 14% Gamesa 14.9 12.6 11.6 10.2 11.6 12.4 10.6 8.7 1.13 13% Linde AG 21.6 13.3 11.9 11.0 14.3 12.6 9.6 8.5 0.62 35% Man AG 21.4 15.7 11.8 10.7 8.4 8.3 6.4 5.7 0.62 35% Rolls Royce Group 19.4 17.6 15.3 12.4 9.1 11.0 9.8 8.5 1.24 16% Schneider Electric 20.0 16.0 13.7 13.5 11.5 10.4 9.0 8.5 0.95 21% Siemens 21.8 17.1 14.3 12.7 19.5 12.4 9.5 8.2 0.93 24% SKF 14.4 12.0 10.3 9.8 10.3 8.3 6.9 6.2 0.82 17% ABB n.m. 22.2 13.2 11.8 19.4 11.7 7.9 6.6 n.m. n.m. Ingersoll Rand Co 20.5 15.1 12.7 n.a. 15.6 12.3 10.1 n.a. 0.73 28% Emerson Electric Co 23.5 21.3 18.7 n.a. 16.3 13.1 11.6 n.a. 1.79 13% Sandvik 17.8 14.8 13.6 12.7 15.3 11.4 10.0 8.7 1.25 14% United Technologies 18.6 16.6 14.8 13.5 12.6 10.9 9.5 n.a. n.m. n.m. Peers (median) 20.0 15.4 13.0 11.7 13.4 11.5 9.6 8.5 0.94 19% Peers (simple average) 19.8 15.9 13.3 11.8 15.4 11.5 9.5 8.1 0.98 23% Vestas (DKK87) n.m. 20.5 15.4 11.1 n.m. 14.3 11.5 8.0 n.m. n.m. Vestas Rel (median) n.m. 1.33 1.19 0.95 n.m. 1.24 1.20 0.95 n.m. n.m. Source: JCF Quant and Carnegie Research Vestas sensitivities Carnegie Vestas' Scenarios (changes to base case) Base - case guidance 1) 2) 3) 4) 5) 6) 7) scenario WACC 9.9% 9.9% 9.9% 9.9% 9.9% 9.9% 10.6% 10.6% 9.9% Asset beta 1.25 1.25 1.25 1.25 1.25 1.25 1.40 1.40 1.25 Equity beta 1.39 1.39 1.39 1.39 1.39 1.39 1.56 1.56 1.39 Sales growth 02 12% 12% 12% 12% 12% 12% 12% 12% 12% Sales growth 03 6% 6% 6% 6% 6% 6% 6% 6% 6% Sales growth 04e 14% 14% 14% 14% 14% 15% 14% 14% 14% Sales growth 05e 13% 13% 13% 13% 13% 15% 13% 13% 13% Sales CAGR 06-10e 13% 15% 13% 13% 13% 15% 13% 13% 13% Sales growth TP 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% EBITA margin 02 5.2% 5.4% 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% EBITA margin 03 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% EBITA margin 04e 6.5% 7.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% EBITA margin 05e 6.9% 10.0% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% EBITA-margin 06-10e 8.6% 10.0% 8.0% 7.5% 8.6% 8.6% 8.6% 8.0% 8.0% EBITA margin TP 8.6% 10.0% 8.0% 7.5% 8.6% 8.6% 8.6% 8.0% 8.0% NWC/Sales 02 42.6% 42.6% 42.6% 42.6% 42.6% 42.6% 42.6% 42.6% 42.6% NWC/Sales 03 35.1% 35.0% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1% NWC/Sales 04e 35.3% 35.3% 35.3% 35.3% 35.3% 35.3% 35.3% 35.3% 35.0% NWC/Sales 05e 31.6% 25.0% 31.6% 31.6% 35.0% 31.6% 31.6% 31.6% 35.0% NWC/Sales 06-10e 30.1% 25.0% 30.1% 30.1% 35.0% 30.1% 30.1% 30.1% 35.0% NWC/Sales TP 30.1% 25.0% 30.1% 30.1% 35.0% 30.1% 30.1% 30.1% 35.0% DCF value per share (DKK) 99.6 153 87 77 84 104 86 76 73 Change in DCF value - 54%-13%-23%-16%5%-14%-24%-27% Potential (current price: DKK87) 14% 76% 0% -11% -3% 20% -1% -13% -16% Source: Carnegie Research 08 June 2004 Carnegie Securities Research 3 Sector Update Wind Gauge Investment highlights Vestas (NewCo) Nordex Gamesa Repower Investment Vestas is being squeezed by hot Restructuring case (NOT The most profitable turbine No competitive advantages case & steel prices, tough competition, RATED).