Siemens Energy attracted attention with numerous headlines in 2023 – and many of them were negative. The group had to issue a profit warning several times over the course of the year until the earnings forecast was finally canceled completely. The ultimate annual loss amounting to billions was primarily due to problems at the wind power subsidiary Siemens Gamesa, which have not yet been resolved. This also had a significant impact on Siemens Energy shares in 2023.
• Siemens Energy has been facing problems at Siemens Gamesa since the start of the year
• Forecast cancellation and billion-dollar guarantee: Siemens Energy shares lose more than a third of their value twice
• Analysts divided on outlook for 2024
The Siemens Energy share is the biggest loser in the DAX in 2023 with a loss of 35.76 percent since the beginning of the year – ahead of Bayer (-33.56 percent) and Zalando (-30.84 percent) (as of December 15th 2023). The year 2023 actually started very promisingly for the energy company’s shares. On the first trading day of 2023, it opened at 17.575 euros and then continued its rally, which has been running since mid-October 2022, which ultimately led it to an annual high of 24.81 euros by the end of May 2023. At this point in time, the stock had gained around 140 percent in value since October 2022 and was one of the biggest winners in the German leading index in 2023. But then came the rude awakening and the turnaround for the share price, which collapsed extremely dramatically twice over the course of the year.
Siemens Energy with several profit warnings because of Gamesa
The fact that Siemens Energy was in crisis in 2023 and incurred the highest loss in its history of around 4.6 billion euros in the past financial year is primarily due to problems in the business of the wind power subsidiary Siemens Gamesa. In 2022, Siemens Energy announced that it wanted to completely take over the wind turbine manufacturer and hoped to achieve synergies of 300 million euros per year. The takeover was successful: at the end of 2022, Siemens Energy held around 93 percent of Siemens Gamesa, followed by the wind power company’s withdrawal from the stock market in February 2023. But around the same time the problems began.
In the first quarter of the 2022/23 financial year, the loss at Siemens Energy doubled to 598 million euros due to the Gamesa takeover, because the warranty and maintenance costs there were unexpectedly high. This didn’t come as a complete surprise, as Siemens Energy had to lower its forecast for the full year in January due to the problems at Gamesa. It was assumed that the operating profit margin before special effects in the 2022/23 financial year would now be 1 to 3 percent – instead of 2 to 4 percent – and that there would be a loss at the previous year’s level (647 million euros). The aim was previously to achieve a significant reduction in losses. At the time, this was still received comparatively calmly on the stock market, but that was about to change. Because further profit warnings were inevitable.
After Siemens Energy had to issue an earnings warning in mid-May 2023 due to the ongoing start-up problems and quality deficiencies in wind turbines from Siemens Gamesa and finally withdrew the forecast completely in June, Siemens Energy shares fell dramatically in just one trading day: on June 23rd Paper, which had closed at 23.38 euros the day before, fell by 37.34 percent to 14.65 euros. The previous upward movement was finally ended in one fell swoop.
It was only in August when Siemens Energy presented its figures for the third quarter that it dared to make an annual forecast again. After a loss of almost three billion euros in the third quarter of the year, a loss of around 4.5 billion euros was now expected for the year as a whole. “The situation at Siemens Gamesa is a major setback,” said CEO Christian Bruch during the conference call. Although the group had already seen the 2022/23 financial year as a “transitional year” since January due to the integration of Siemens Gamesa, it was apparently still a surprise to the DAX company.
Ultimately, Siemens Energy recorded a loss of almost 4.6 billion euros for the year as a whole, and the adjusted margin was minus 8.9 percent. The other divisions of Siemens Energy – Gas Services, Grid Technologies and Transformation of Industry – that were able to meet or exceed their targets were unable to offset the losses from the wind power business, the group said in a statement.
Guarantees worth billions are needed
But the billion-dollar loss was not Siemens Energy’s only major problem in 2023. Strong incoming orders and a large order backlog of more than 100 billion euros caused further difficulties. In order to be able to process the order backlog, Siemens Energy was dependent on guarantees worth billions. According to Reuters, banks no longer wanted to handle this alone due to the cluster risk and the company’s credit rating, which had deteriorated. When it became known at the end of October that the DAX group was negotiating with the federal government over state guarantees worth billions, Siemens Energy’s share price fell massively for the second time in 2023: on October 26, 2023, the share price crashed again by 35.49 percent fell and closed at 6.87 euros. During trading that day it also marked a 52-week low of EUR 6.40.
However, with the conclusion of the guarantee package, Siemens Energy was able to regain some breathing room around two weeks later. In mid-November it became known that the group would receive guarantee lines totaling 15 billion euros. 12 billion euros of this come from private banks and are partly secured by a federal guarantee. Another three billion euros come from other parties involved. The share price also initially calmed down again and the shares were recently able to recover to 11.38 euros (as of: closing price on December 15, 2023).
What will happen next for Siemens Energy in 2024?
Siemens Gamesa is likely to make further losses in 2024, but Siemens Energy’s consolidated earnings are expected to show a surplus of one billion euros again. However, this is likely to come about primarily through the sale of company shares. For example, a share in Siemens India has already been sold for 2.1 billion euros to the former parent company Siemens, from which Siemens Energy spun off in 2022. Operationally, however, Gamesa could end up in the red again, as the division is unlikely to reach break-even until the 2025/26 financial year.
Meanwhile, analysts have different views on the shares and business of Siemens Energy. At the beginning of December, analyst Andrew Wilson from JPMorgan lowered the price target for the company’s paper to 9.60 euros and put it on the list of “stocks to avoid”. In view of the negative surprises at Siemens Gamesa, trust in the management has been eroded, according to the expert. He sees “no easy way to create value” at Siemens Energy and believes further capital measures are likely. If there is actually a capital increase in 2024, it is likely to weigh on Siemens Energy’s share price again.
The US bank Goldman Sachs, however, is more positive. It still recommends buying the share with a price target of EUR 18.60. Ratings agency Standard & Poor’s removal of its “Credit Watch Negative” rating could ease market concerns about the energy technology company’s balance sheet, analyst Ajay Patel wrote. This also applies to concerns about a possible short-term capital increase. Barclays analyst Vladimir Sergievskiy was also confident about the future of Siemens Energy shares with an “overweight” rating and a price target of 19 euros. The wind business could possibly continue to burn cash until after 2026, but the recovery journey, which will probably take a long time, is starting right now, according to the analyst.
It is possible that Siemens Energy will finally achieve a positive annual performance again in 2024 – after the heavy losses in 2023 and a loss of around 22 percent in 2022. After all, since the October low it has now increased again by around 77 percent (as of: closing price on December 15, 2023).
Editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
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