solar world

8/3/2019 Solar World

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Macro Commodities Forex Rates Equity Credit Derivatives

10/06/2011

EquityRenewable energies Rating reiterated

www.sgresearch.com

GermanySOLARWORLDA confident message, contrary to rivals

Update At the analyst meeting held during the Intersolar conference, questions revolvedmainly around Q2 expectations. While the company did not provide any numbers, it said that

growth remained firm and that it was operating at full capacity. Management is also expecting

an emergence of purchasing opportunities in June ahead of the impending cut to German rates

(-6% according to Solarworld). However, Solarworld emphasised that Q2 2010 was historically

high and made for a demanding comparison base. The upbeat message contrasted with

comments made by Solarworlds main competitors, who are still facing a tough market. The

companys US performance remains solid and its momentum there is strong, so it should

manage to generate EBIT in 2011. Lastly, Solarworld will continue to restructure, with the goal

of reducing its costs to 0.8/W. Production costs at the last production facilities that came on

stream stand at around 1/W.

Impact The analyst meeting did not reveal anything that would prompt us to makesignificant changes to our 2011 estimates. Solarworld is holding up remarkably well in a

difficult environment, which is reflected in our earnings forecasts. Our 2011 EBIT and

attributable net profit estimates are 10% above the consensus forecasts.

Target price & rating We maintain our TP at 12 based on a DCF (MT growth 8%, WACC9.8, beta 1.2). The stock is trading at respectively 8.0x and 7.7x 2011e and 2012e EBIT,

representing a c.15% discount to the peer average. This is not warranted in our view given

the companys operating performance compared to its main rivals. At 12 per share, the

implied EV/EBIT multiples are in line with sector multiples. Risks: bigger than expected

decrease in the average price of modules.

Next events & catalysts A continued pick-up in the German and Italian markets andsustained development of the US market are prerequisites for Solarworlds share

performance. However, Solarworlds positioning in roof-top systems, with its comprehensive

offerings, gives it a unique profile and makes it more resilient than peers.

Buy (12m)Price 08/06/11 12m target8.99 12.0SectorWeightingNeutralPreferred stockSolarworldLeast preferred stockQ-Cells

1 yearPrice MA 100

7

10

13

16

2010 2011

0

6

12

18

(m)

2010 2011

Source: SG Cross Asset Research

SolarWorldon www.sgresearch.com

Share data Financial data 12/10 12/11e 12/12e 12/13e Ratios 12/10 12/11e 12/12e 12/13eRIC SWVG.DE, Bloom SWV GR Revenues (bn) 1.30 1.53 1.77 1.86 P/E (x) 13.0 10.8 10.1 9.852-week range 12.0-7.04 EBIT margin (%) 14.8 11.9 11.0 10.8 FCF yield (/EV) (%) -2.6 -1.6 1.1 1.5

EV 11 (m) 1,450 Rep. net inc. (m) 87 94 101 105 Dividend yield (%) 1.9 2.2 2.3 2.3

Market cap. (m) 978 EPS (adj.) () 0.78 0.83 0.89 0.92 Price/book value (x) 1.2 1.0 1.0 0.9

Free float (%) 58.5 Dividend/share () 0.19 0.20 0.21 0.21 EV/revenues (x) 1.24 0.95 0.85 0.84

Performance (%) 1m 3m 12m Payout (%) 24.3 23.7 23.1 22.5 EV/EBIT (x) 7.7 8.0 7.7 7.8Ordinary shares -12.5 6.4 9.7 Interest cover (x) 2.4 2.1 2.3 2.4 EV/IC (x) 1.1 0.9 0.9 0.9

Rel. Eurofirst 300 -8.4 11.5 -1.7 Net debt/equity (%) 60.5 52.4 53.3 55.6 ROIC/WACC (x) 1.1 0.9 0.9 0.8

CAGR 10-13e: +5.4%

Didier Laurens(33) 1 42 13 50 78

[email protected]

Societe Generale (SG) does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that SG may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a

single factor in making their investment decision. PLEASE SEE APPENDIX AT THE END OF THIS REPORT FOR THE ANALYST(S)

CERTIFICATION(S), IMPORTANT DISCLOSURES AND DISCLAIMERS AND THE STATUS OF NON-US RESEARCH ANALYSTS.
http://www.sgresearch.com/company_o.rha?ric=SWVG.DEhttp://www.sgresearch.com/company_o.rha?ric=SWVG.DEhttp://www.sgresearch.com/company_o.rha?ric=SWVG.DEhttp://www.sgresearch.com/company_o.rha?ric=SWVG.DE


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Sales/division 10

Others 1%

Projects 3%Cells/wafers 24%

Modules 73%

Sales/region 10

Others 2%Asia 10%

USA 12%

Other Europe 23%

Germany 53%

Major shareholders (%) Asbeck family 27.8

DWS 5.3

UBS 3.3

Normalised dataEBITDA margin (%) 17.0

Normalised growth (%) 10.0

Renewable energies (Germany) Price (08/06/11) 12m targetSolarWorld BUY 8.99 12.0Valuation* (m) 12/06 12/07 12/08 12/09 12/10 12/11e 12/12e 12/13eNb. of shares basic year end/outstanding 55.9 111.7 111.7 111.7 108.8 108.8 108.8 108.8Share price (average) 24.17 34.46 27.96 16.48 10.19 8.99 8.99 8.99

Average market cap. (SG adjusted) (1) 1,350 3,850 3,124 1,841 1,109 978 978 978

Restated net debt (-)/cash (+) (2) 140 152 137 -319 -559 -522 -572 -642

Value of minorities (3) 0 0 0 0 0 0 0 0

Value of financial investments (4) 19 22 50 50 50 50 50 50

Other adjustment (5)

EV = (1) - (2) + (3) - (4) + (5) 1,191 3,677 2,937 2,110 1,618 1,450 1,500 1,570

P/E (x) 10.3 34.7 23.1 31.2 13.0 10.8 10.1 9.8

Price/cash flow (x) 28.5 30.3 15.0 nm 7.7 9.5 8.9 8.6

Price/free cash flow (x) nm 287.5 nm nm nm nm nm nm

Price/book value (x) 2.3 5.6 3.7 2.1 1.2 1.0 1.0 0.9

EV/revenues (x) 2.31 5.33 3.26 2.08 1.24 0.95 0.85 0.84

EV/EBITDA (x) 5.3 15.3 9.3 9.8 5.8 5.2 5.1 5.1

Dividend yield (%) 0.8 0.4 0.5 1.0 1.9 2.2 2.3 2.3

Per share data ()SG EPS (adj.) 2.36 0.99 1.21 0.53 0.78 0.83 0.89 0.92

Cash flow 0.85 1.14 1.86 -0.84 1.32 0.94 1.01 1.05

Book value 10.69 6.19 7.53 7.75 8.29 8.75 9.44 10.15

Dividend 0.20 0.14 0.15 0.16 0.19 0.20 0.21 0.21

Income statement (m)Revenues 515 690 900 1,013 1,305 1,531 1,774 1,864

Gross income 244 339 469 374 479 531 604 639

EBITDA 223 241 316 216 281 277 295 305

Depreciation and amortisation -43 -42 -55 -64 -89 -95 -101 -104

EBIT 181 199 261 152 193 182 195 201

Impairment losses 0 0 0 0 0 0 0 0

Net interest income 3 -21 -64 -16 -44 -49 -52 -54

Exceptional & non-operating items 0 0 0 0 0 0 0 0

Taxation -50 -65 -53 -73 -61 -39 -41 -43

Minority interests 0 0 0 0 0 0 0 0

Reported net income 132 111 135 59 87 94 101 105

SG adjusted net income 132 111 135 59 87 94 101 105

Cash flow statement (m)EBITDA 223 241 316 216 281 277 295 305

Change in working capital -145 -20 33 -218 -29 -72 -77 -90

Other operating cash movements -31 -94 -141 -91 -106 -98 -103 -97

Cash flow from operating activities 47 127 208 -94 146 107 115 119

Net capital expenditure -106 -114 -261 -317 -230 -180 -150 -150

Free cash flow -59 13 -53 -410 -84 -73 -35 -31

Cash flow from investing activities -10 3 13 6 -5 0 0 0

Cash flow from financing activities 226 -11 22 -12 -60 -21 -22 -24

Net change in cash resulting from CF 158 5 -18 -416 -148 -94 -58 -55

Balance sheet (m)Total long-term assets 363 423 667 882 1,084 1,169 1,219 1,265

of which intangible 3 3 4 8 10 8 6 4

Working capital 182 202 168 386 415 488 565 655

Employee benefit obligations

Shareholders' equity 597 692 841 866 923 995 1,073 1,154

Minority interests 0 0 0 0 0 0 0 0

Provisions 19 23 29 29 34 34 34 34

Net debt (-)/cash (+) 140 152 137 -319 -559 -522 -572 -642

Accounting ratiosROIC (%) 33.2 25.8 26.8 10.8 10.5 8.7 8.5 8.1ROE (%) 32.3 17.2 17.6 6.9 9.8 9.8 9.8 9.4Gross income/revenues (%) 47.3 49.1 52.1 36.9 36.7 34.7 34.1 34.3

EBITDA margin (%) 43.3 34.9 35.1 21.3 21.6 18.1 16.6 16.4

EBIT margin (%) 35.1 28.8 29.0 15.0 14.8 11.9 11.0 10.8

Revenue yoy growth (%) 44.7 33.8 30.6 12.5 28.8 17.4 15.9 5.1

Rev. organic growth (%) 44.7 33.8 30.6 12.5 28.8 17.4 15.9 5.1

EBITDA yoy growth (%) nm 7.9 31.1 -31.8 30.5 -1.6 6.6 3.5

EBIT yoy growth (%) nm 10.0 31.2 -41.8 27.0 -5.6 7.0 3.4

EPS (adj.) yoy growth (%) 127.3 -57.9 22.0 -56.4 48.7 5.8 7.5 3.0

Dividend growth (%) 53.8 -30.0 7.1 6.7 18.8 5.3 5.0 0.0

Cash conversion (%) -5.9 50.0 24.6 -212.2 11.4 8.1 29.7 32.6

Net debt/equity (%) nm nm nm 36.8 60.5 52.4 53.3 55.6

FFO/net debt (%) nm nm nm 39.9 31.4 36.3 35.3 32.5Dividend paid/FCF (%) nm 116.8 nm nm nm nm nm nm

* Valuation ratios for past years are based on average historical prices and market capitalisations

Normalised

profitability


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APPENDIX

COMPANIES MENTIONED

Q-Cells (QCEG.DE, Hold)SolarWorld (SWVG.DE, Buy)

ANALYST CERTIFICATION

Each author of this research report hereby certifies that (i) the views expressed in the research report accurately reflect his orher personal views about any and all of the subject securities or issuers and (ii) no part of his or her compensation was, is, orwill be related, directly or indirectly, to the specific recommendations or views expressed in this report: Didier Laurens.

Historical Price: SolarWorld (SWVG.DE) 2008/2009 Change 2010/2011 Change

6

11

16

21

26

31

36

06/08 09/08 12/08 03/09 06/09 09/09 12/09 03/10 06/10 09/10 12/10 03/11

Price Target MA100 Change Reco

25/06/08 New Rating: Buy 25/02/10 New Rating: Under

Review

25/06/08 New Target: 36.0 26/02/10 New Rating: Hold

17/11/08 New Target: 26.0 26/02/10 New Target: 10.5



30/09/09 New Target: 24.0 11/06/10 New Rating: Buy


30/07/10 New Target: 14.0

15/11/10 New Target: 12.0


SG RATINGSBUY: expected total return of 10% or more over a 12 monthperiod.

HOLD: expected total return between -10% and +10% over a 12month period.

SELL: expected total return of -10% or worse over a 12 monthperiod.

Sector Weighting Definition:The sector weightings are assigned by the SG Equity ResearchStrategist and are distinct and separate from SG research analystratings. They are based on the relevant MSCI.

OVERWEIGHT: sector expected to outperform the relevant broadmarket benchmark over the next 12 months.

NEUTRAL: sector expected to perform in-line with the relevantbroad market benchmark over the next 12 months.

UNDERWEIGHT: sector expected to underperform the relevantbroad market benchmark over the next 12 months.

Equity rating and dispersion relationship48%

40%

13%

50%

39%

48%

0

50

100

150

200

250

Buy Hold Sell

Companies Covered Cos. w/ Banking Relationship


MSCI DISCLAIMER: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Withoutprior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or

used to create any financial products, including any indices. This information is provided on an as is basis. The user assumes the entire

risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the


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