BULL POINTS:
■ End markets recovering
■ Key links with major turbine makers
■ Lower manufacturing costs
BEAR POINTS:
■ Risk of double-dip recession
■ Technology risk
The global economic downturn was not kind to Hansen Transmissions, a supplier of gearboxes to industry, and, more importantly, to wind turbine manufacturers. But the company has pared back its costs and increased its manufacturing capacity in low-cost economies, leaving it well placed to take advantage of recovery in its end markets.
When the downturn hit, Hansen, with its relatively high fixed-cost plants in Belgium, was hit as orders were deferred after bank financing dried up. But with signs that interest in wind energy is picking up as finance becomes more available, and government incentives favouring investment in renewable energy, Hansen's shares look oversold.
| IC TIP RATING | |
|---|---|
| Risk rating: | Medium |
| Timescale: | Long term |
| Tip type: | Growth |
Hansen has specialised in wind turbine gearboxes since 1979. Its experience has seen it secure a healthy 23 per cent of the global market for wind turbine gearboxes, second only to Siemens Winergy. It also leads the market in the multi-megawatt turbine category, which is becoming increasingly dominant as manufacturers look to increase the power of their turbines. True, Hansen could face a technological threat should direct-drive turbines, which do not contain gearboxes, prove popular. But it will take some time for direct drive to prove and establish itself as an alternative to the incumbent technology and the overall market is sufficiently large to accommodate both.
| ORD PRICE: | 86p | MARKET VALUE: | £576m | |
| TOUCH: | 85-86p | 12-MONTH HIGH/LOW: | 173p | 78p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 11 | |
| NET ASSET VALUE: | 78p | NET DEBT: | 22% | |
| Year to 31 Mar | Turnover (€m) | Pre-tax profit (€m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 421 | 34.5 | 5.8 | nil |
| 2009 | 609 | 62.1 | 6.7 | nil |
| 2010 | 532 | -11.7 | -1.3 | nil |
| 2011* | 587 | 20.0 | 2.0 | nil |
| 2012* | 728 | 76.0 | 9.0 | nil |
| % change | +24 | +280 | +350 | - |
Normal market size: 8,000 Matched bargain trading Beta: 0.9 *Piper Jaffray estimates £1.00 = €0.87 | ||||
Meanwhile, demand for wind power is beginning to recover and, longer term, industry specialist BTM Consult forecasts global wind capacity will grow from 160GW in 2009 to 975GW by 2020. While some of this will be driven by the European Union's intention that 20 per cent of the region's power should come from renewable sources by 2020, emerging economies, such as China and India, are becoming more important. China has doubled its wind capacity every year since 2004 and should reach its 2020 target of 30GW of wind power by the end of this year.
This has encouraged the development of a Chinese wind turbine manufacturing industry. Hansen recently announced a contract with leading Chinese turbine manufacturer Sinovel, the third biggest wind turbine manufacturer in the world in 2009, and has prototypes under testing with two other Chinese manufacturers. This gives Hansen a foothold in the world's second biggest wind market. Hansen has an assembly plant in China that will be upgraded to a full manufacturing facility as its business there develops. It also has a manufacturing plant in India up and running.
Hansen plans to take its gearbox manufacturing capacity to 14,300MW by 2013, double its 2007 level, with the bulk of this growth coming in emerging markets. Having reduced its debts and renegotiated its borrowing agreements, the risk of Hansen running into financial trouble before the recovery in end markets takes hold has reduced.
