Værdiansættelse af Vestas Wind Systems A/S med Discounted Cash Flow model

Olga Kiake

Student thesis: Master thesis


The purpose of this thesis is to perform a strategic analysis and a valuation of the publicly listed Danish windmill manufacturer, Vestas Wind Systems A/S. This is undertaken in order to assess the accuracy of theoretical valuation methods measured against market based valuation. The valuation model used in this thesis is the “The Discounted Cash Flow” model, a model that requires estimating the stockholders required rate of return, as well as the Weighted Average Cost of Capital (WACC), in order to calculate the theoretical value of the stock. The data presented in this thesis was collected up until December 31, 2008. The level of analysis in the thesis is the corporate level, meaning that individual business units are analyzed as a whole. The following conclusions can be drawn on the basis of the valuation report presented in this thesis. The strategic analysis was undertaken in order to clarify Vestas' present and future growth potential. The findings of the analysis show that the market for wind energy is still developing and very dependent on political decision-making, with manufacturers competing aggressively for market shares. The demand for wind energy depends on energy policymaking, and subsequently the energy policies of individual countries. Infrastructural changes in the energy sector thus influence buyer behavior. Developments over the last few years indicate that manufacturers face increasing demands from the financial sector. Since larger orders require better financial resources, emphasis on the earning power and financial stability of companies has increased. The second critical success criteria is the cost per kWh, which has put Vestas under constant pressure to optimize its variable costs. Several studies indicate that that wind energy remains at a disadvantage compared to the lower costs of conventional power plants, meaning that subsidies are still necessary to bolster manufacturers. The analysis also demonstrates that decreasing marginal returns indicate a break-even point at which it is no longer profitable to expand wind energy's share of total energy consumption. This means that the demand for wind energy is a limiting factor that may negatively influence the industry's future growth. Similarly, fluctuations in currencies, interest rate levels, and international and national business cycles may influence Vestas negatively. Vestas has, however, to a considerable extent sought to reduce the impact of currency fluctuations by building a presence on export markets. Bottlenecks in the production line may also impact earning power and buyer retention. Vestas seeks to solve this problem by means of vertical integration, placing the production facilities near suppliers, and by drawing up contracts that make suppliers dependent on Vestas' business. The growing emphasis on the reduction of greenhouse gases contributes positively to the demand for renewable sources of energy, with wind power being seen as the best solution to this challenge. This fact might entail future growth for Vestas, since more than 140 countries are involved in the collaborative efforts surrounding the Kyoto-Protocol. Europe is Vestas prime market, and is expected to remain so several years into the future since Europe possesses a politically motivated desire to reduce its dependence on imported fossil fuels. By setting up production facilities and sales offices in key export markets, Vestas has gained advantages from synergy effects and economies of scale, which in turn will impact production costs, sales, and logistical tasks positively in the future. The fact that Vestas has increased in size following a merger also entails a stronger bargaining position in relation to buyers, since the size of the supplier relative to buyers ensures a favorable balance of power. The production system has been improved by several measures, which are aimed at achieving economies of scale, and thereby reduced production costs. Thus, Vestas has concentrated production capacity of certain components at specialized plants and placed production facilities closer to its respective markets. Vestas production and distribution costs has analyzed using the concept of economies of scale. Results, however, show that improvements are still needed, both in the area of production and distribution. Individual years display significant increases in both production and distribution costs, which may impact the profitability of individual projects, and, in the end, the entire corporation. Sales activities on the other hand have experienced a growth in added value and landed a significantly higher number of orders, especially in 2008. The greatest vulnerability that Vestas faces is its dependence on policymakers' willingness to introduce renewable energy, since the price of wind power is still not competitive with that of conventional energy sources. The same vulnerability is displayed in the area of subsidies, e.g. as in the U.S. PTC scheme for renewables. The overall conclusion is that Vestas holds a strong position in the market owing to its consolidated base of capabilities and expertise. If Vestas is able to maintain and build upon its competitive advantages using these capabilities and expertise, as well as keep up with the high growth rates in the industry, the future prospects of Vestas appear positive.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2009
Number of pages103