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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 competition.
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 current environment.
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 demand.
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 sector subsidies.
"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. ($1=.7011 Euro) (Editing by Jon Loades-Carter)