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* Bulls point to weak but forecast-beating results
* Bears concerned about competition, industry outlook
By Christoph Steitz
FRANKFURT, May 18 SMA Solar (S92G.DE), the
world's largest maker of solar inverters, last week posted
stronger-than-expected first-quarter results. [ID:nLDE74B1BJ]
However, the figures also showed that its margin for
earnings before interest and tax (EBIT) -- usually close to 30
percent -- fell to 5.4 percent in the first three months of the
year, due to high inventories at customers and stronger
According to Thomson Reuters StarMine, 41 percent of
analysts covering the stock rate it "buy" or "strong buy", while
23 percent rate it "sell" or "strong sell". More than a third
recommend holding on to the stock for now.
While bulls note the company was able to remain profitable
during a tough year in the photovoltaic industry, bears see
fierce competition and the cloudy industry outlook eating away
at its profitability.
PROFIT IN TOUGH TIMES
Analysts at UBS and Bryan, Garnier & Co said that while the
company's margin in the first quarter was particularly low, it
was a positive signal the company remained profitable in the
After a record year in 2010, the solar industry is once
again facing falling government support in key markets such as
Germany and Italy, leading to earnings pressure and falling
SMA, too, confirmed its 2011 sales forecast of 1.5-1.9
billion euros ($2.1-2.7 billion) last week, which means sales
will remain flat or fall up to 21 percent compared with the 1.9
billion achieved in 2010.
But it said the second half of the year would show a
"distinctly more dynamic development" compared with the first
six months of the year, boosted by strong demand outside Europe.
"We expect SMA to fully benefit from the pick-up in sales
due to its flexible manufacturing model and market leadership in
all major markets," analysts at UBS said, keeping a "buy" rating
on the stock.
Bryan, Garnier & Co analyst Julien Desmaretz, keeping its
"buy" rating on the stock, also said SMA's results were better
than expectations. "We continue to see SMA as the safest play
amongst our PV (photovoltaic) coverage," he said.
FIERCE COMPETITION, CLOUDY OUTLOOK
HSBC analyst Christian Rath expects SMA Solar's share of the
global inverter market -- currently above 40 percent -- to fall
due to increasing competition.
SMA's main competitor is U.S.-based Power One PWER.O,
which virtually appeared out of nowhere last year to become the
world's No.2 player in the solar inverter market.
Graphic on solar inverter market share:
"Given our more cautious market share and price assumptions,
our 2011 EBIT forecast of 297 million euros (20 percent EBIT
margin) is below SMA's 2011 guidance," Rath added, keeping an
"underweight" rating on the stock.
SMA said it expects an EBIT margin of 21-25 percent in 2011.
Steubing Research analyst Alla Gorelova is also sceptical
about the company's positive view on the second half of the
year, cautioning that demand may not hold up in light of falling
"So, it looks like in the best case we will have a
relatively solid second quarter for SMA, but the outlook for the
second half of 2011 is still very uncertain," she said, keeping
a "sell" rating.
(Editing by Jon Loades-Carter)