Vaisala: Important Link in Renewable Energy Supply Chain

The post “Equinor Floats a Wind Dream” on August 7th focused on efforts by the newly renamed oil and gas company to revamp its energy portfolio with off-shore wind energy production.  Wind power provides about 5% of the world’s electricity supply  -  not an especially large portion, but impressive given the very recent emergence of utility-scale wind power production.  Policy makers in Scandinavia, where Equinor is at home, have been particularly supportive of wind power.  Likewise are its neighbors to the west, Ireland and Scotland.

Wind power developers are not alone in building the market.  There are a number of equipment suppliers that help smooth the way for towers and turbines.  Knowledge of weather conditions can be used to optimize solar and wind operations.  Equipment failures mean unnecessary and expensive energy production interruptions.  These realities help make a strong investment case for renewable energy equipment. 

One link in the supply chain is Vaisala Oyj (VAIAF:  OTC; OGEG:  LON; VAIAS:  HE), a specialist in weather and environmental measurement instructions and systems.  The company also offers technical support to energy developers as well as calibrating and repairing sensors and instrumentation. Based in Finland, Vaisala has customers around the world in the power and renewable energy industries.

Vaisala got its start in the 1930s using radio technology to retrieve observation results from weather measurement equipment.  Its weather and environmental equipment and solutions are still important elements in its product portfolio.  The company brags that its engineers have delivered over 1,800 renewable energy assessments.  Its instruments forecast critical data for over 150 gigawatts of global wind capacity, helping wind tower operators maximize power production.

Investors can count on two financial reports each year from Vaisala.  The company recently reported sales and earnings for the first six months of 2020, with sales totaling EUR 178.6 million.  The company converted 2.4% of sales to operating cash flow or EUR 4.2 million. 

With the last financial report in July 2020, Vaisala management provided fairly bullish guidance for the remainder of the year.  Sales for the full year 2020 are expected to range from EUR 370 million to EUR 405 million, providing operating income in a range of EUR 34 million to EUR 46 million.    At the top of the range implies flat sales compared to the EUR 403.6 million in sales reported in 2019.   The implied operating margin is 11.4%, which is better than 10.2% realized in the previous year.  The company’s order book held EUR 145.3 million at the end of June 2020, down 4% from the sale time a year ago and not a good supporter of management’s view that the company will experience only modest negative impact from the global health crisis that has got U.S. companies running for cover.

If the company fails to meet its own benchmark, the current management will not have to answer for it.  The company is getting a new chief executive officer in October 2020.  Change in the board room can sometimes mean new ideas that promote growth or at least improve profits.  The change should be a net positive for Vaisala shareholders

U.S. investors can find Vaisala’s shares quoted by the Over-the-Counter service.  However, at this venue the shares trade nearly by appointment.  The shares are also listed on the London Exchange where a few more shares get passed around.  To find any volume at all, it is necessary to go to the company’s home turf on the Helsinki exchange where the stock is quoted in Euros. 

Vaisala shares are not cheap, trading at 31.3 times trailing earnings.  This is apparently the price of consistent profitability and reliable industrial market share.  A forward dividend yield of 1.9% helps sweeten the deal.  

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.