Coverage Initiation: Siemens Energy
We initiate coverage of Siemens Energy, which was spun off from Siemens AG in 2020 and is a global player in the energy business. The group recently acquired the remaining shares in SGRE and delisted it. Also, at its CMD last year, Siemens Energy unveiled a new reporting structure aimed at improving profitability in the erstwhile Gas and Power business. We believe that 2022 marked a trough in profitability for the group and things should improve from hereon out.
| Target Price |
Credit Risk |
Fundamental Strength |
Sustainability Score |
Independent Board |
| 23.6 |
CC |
0/10 |
7/10 |
Yes |
We initiate coverage of Siemens Energy, which was spun off from Siemens AG in 2020 and is a global player in the energy business. Siemens Energy is headquartered in Berlin, has c. 92,000 employees and is present in more than 90 countries. Until September 2022, the group had two main divisions, Gas and Power, and the recently delisted SGRE. The former offers products, systems, solutions, and services in areas of power transmission, central and distributed power generation, and industrial applications for the oil & gas and industrial process applications. The latter designs, develops, manufactures and installs wind turbines together with the associated services. At the end of FY2022, Siemens Energy had an order backlog of more than €97.0bn and revenues of €29.0bn. By geography, it derives about half of its sales from EMEA, c. 30% from the Americas and the remainder from Asia. Siemens Energy is one of the 3 companies we cover in our alternative power source equity research universe. The others being Vestas Wind Systems and Nordex SE.
New reporting structure
From the start of this fiscal year, Siemens Energy will report its results under a new reporting structure. In this structure, the erstwhile Gas and Power business has been split into three different business areas. The fourth business area is SGRE. With individual revenue growth (comparable) and margin targets set for each business area, this move provides increased transparency on the group’s operations. This move also highlights the management’s emphasis on creating value via an increased focus on complexity reduction, cost optimization and innovation.
Reformation structure of Siemens Energy
Medium-term targets
At its CMD last year, Siemens Energy set separate medium-term targets (FY25) for each of the divisions under the new structure except SGRE. In FY23 we expect these margin targets to be supported by the group’s cost saving programme announced at its CMD in 2020. Under this programme, the group’s target was to extract cost savings of >€800m in the previous Gas and Power segment by the end of FY23. So far, >€500m of cost savings have been realised and the remainder are expected to be delivered in FY23.
An end to SGRE’s troubles in 2023?
FY22 was a tough year for SGRE due to input cost inflation, supply-chain issues and ramp-up issues across its 5.X Onshore platform. Altogether, these challenges resulted in significant losses which, in turn, also weighed on Siemens Energy’s results. This resulted in Siemens Energy launching an offer for the remaining outstanding shares and the eventual delisting of SGRE. Looking at FY23, SGRE’s Q1 results have already led Siemens Energy to slightly adjust downwards its profitability outlook. For the remainder of the fiscal year, we expect the situation to gradually improve but don’t rule out the possibility of another negative surprise.
Group outlook FY23
In FY23, Siemens Energy expects comparable revenue growth of 3-7% with a profit margin (before special items) of 1-3%. Additionally, the group expects a net loss at the prior fiscal year’s reported level. By business area, the group expects comparable revenue growth in Gas Services, Grid Technologies and Transformation of Industry of 0-4%, 5-9%, 5-9% respectively. In terms of margins, the group expects a margin of 9-11% in Gas Services, 6-8% in Grid Technologies and 3-5% in Transformation of Industry. SGRE’s comparable revenue and margin targets are still under evaluation.
Initiating with an Add rating
With the management’s increased emphasis on profitability in the three Gas and Power business areas and the delisting of SGRE, we believe that FY23 results will show some turnaround. In our view, the medium-term targets also look achievable and, thus, we have aligned our forecasts keeping these targets in mind.
For valuations & financials, contact us.
Subscribe to our blog
A deep dive into French state listed assets worth c.€78bn
From losing ~6% in a single day to outperforming a weak sector, know why the stock is still worth a ...
SocGen’s valuation curse and “filling the value gap”