Vestas shares cool as investors look beyond Mitsubishi talks

COPENHAGEN, Sept 7 Fri Sep 7, 2012 8:24am EDT

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COPENHAGEN, Sept 7 (Reuters) - Shares in Danish wind turbine manufacturer Vestas lost some strength on Friday as investors looked beyond the prospect of a cash injection from Mitsubishi Heavy Industries to the long-term cash flow problems that will be hard to fix.

Trying to stem its bleeding cash flow, cut costs and turn around its fortunes, the world's biggest wind turbine manufacturer last week said it was in "strategic" talks with Mitsubishi, without giving any more details.

The announcement sent Vestas shares jumping close to 20 percent initially, with further rises in the days that followed, but they lost some of their strength on Friday after investors' initial euphoria cooled.

Analysts have said the talks could centre on the industrial conglomerate investing up to 200 million euros ($252.70 million) in return for a 20 percent stake in Vestas and access to some of its technology, possibly for offshore turbines.

But a 200 million euro cash injection - if the talks succeeded - would only be a quick fix, they warned.

"The share has risen, but if someone thinks that Mitsubishi will come with a bag of money and solve all of Vestas' problems, that is too simple," Nykredit senior analyst Klaus Kehl said.

"The company cannot continue down the path they have historically followed. If they do not manage to turn around the negative cash flow, they will get renewed financial problems."

Vestas shares traded nearly flat at 45.78 Danish crowns per share at 1201 GMT on Friday, down from a high since the talks were announced of 51.52 crowns, reached on Tuesday.

Sanford C. Bernstein analyst Martin Prozesky said: "They currently burn 300 million euros per quarter, so if Mitsubishi gives Vestas 200 million euros for a 20 percent stake, it would only solve the cash problem short-term."

"It would not solve the balance sheet issue," he added.

Vestas' debt stood at 1.15 billion euros at the end of June.

The company posted a negative free cash flow of 338 million euros for the second quarter, worse than the negative 295 million of the first quarter, leaving a wide gap to bridge to meet its target of positive free cash flow for the year.

Free cash flow - operating cash flow minus capital expenditure - is the cash a company can generate after spending money needed to maintain or expand its asset base.

Chief Executive Ditlev Engel warned last month that next year would be the toughest for the wind industry in years and unveiled plans for 1,400 more job cuts.

"I think they have now realised the extend of their problems and are doing what they can to fix their cash burn and fix their business," Kehl said.

"But the issue is, everyone in the sector is under pressure. There is not much champagne in this industry."

The wind industry has been hit by government cuts to renewable energy subsidies, and production problems and delays in delivering projects wiped out Vestas' profits last year, causing a shake-up in top management.

The expiry of an important tax credit for renewable energy is seen hitting the U.S. market hard next year. ($1 = 0.7915 euros) (Reporting by Mette Fraende; Editing by Helen Massy-Beresford)

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