Date: 18/1/12
Broker: Commerzbank
Company: SMA Solar Technology
Share price: €45.22
Target price: €40
Recommendation: Reduce (from Hold)
SMA still has the highest market share in the solar inverter sector, but 2011 figures were disappointing and the outlook for 2012 is uncertain.
A tight project finance market, falling system prices and rising competition will hit profitability.
Commerzbank has increased its estimates for the global solar installation market. Installations in 2011 have been higher than expected, with this estimate having been increased from 20GW to 22.9GW. The forecast for 2012 has been raised from 21.5GW to 22.5GW, although that still represents a year-on-year decline. Sharp falls in demand from Germany and Italy will be partly offset by growth in China and Japan. However, because SMA is not exposed to these growing markets its addressable market is expected to shrink by 14% this year.
SMA reported an operating profit of more than €240 million on sales of €1.7 billion. Operating profit is forecast to fall to €140 million in 2012 following a 28% downgrade.
Commerzbank believes that SMA's enterprise value of €1.3 billion and low barriers to entry mean that SMA is not an attractive takeover target.
