Since Russia’s invasion of Ukraine, governments have sought ways to reduce their reliance on its oil and gas supplies. Green energy appears to be a big part of the answer — although stock prices in the space are yet to see an uplift from these efforts. While shares in both Vestas Wind Systems and Enphase Energy have declined in the year-to-date, SQM’s rally is telling of the growing demand for lithium as part of the broad carbon transition.
Russia’s war in Ukraine has already created what look to be permanent changes to the way the world works, bringing companies like Enphase Energy [ENPH], Vestas Wind Systems [VWS.CO] and SQM [SQM] centre stage as countries seek to transition to green energy.
With the SQM share price surging close to 90% in the year-to-date (through 19 May), its peers Vestas Wind Systems and Enphase Energy respective declines of 21.2% and 9.5% during the same period could make these stocks more attractive buys at discounted prices.
Russia’s stranglehold on European energy supplies has encouraged governments to reconsider how and where they procure their energy — and any changes made are being done with an emphasis on creating a sustainable future.
On 18 May, the EU already announced a “massive” planned increase in the use of solar and wind power, so that it can move away from Russian oil and gas supplies. The bloc plans to spend an extra €210bn over the next five years on this project.
The buzz around renewables helped to lift the share price of green energy ETFs in the weeks that followed the invasion, with the SPDR Kensho Clean Power ETF [CNRG] up 24.2% and the iShares Global Clean Energy ETF [ICLN] up 21.2% between 24 February and 24 March. However, both funds have since fallen off these highs, suggesting that momentum may have slowed.
Enphase Energy taps Europe for solar adoption
When announcing its latest financial results in April, Enphase Energy CEO Badri Kothandaraman said the company plans to “tripling down on Europe in terms of spending”.
Enphase, which makes solar battery systems that make it easier to store, use and sell green energy, is responding to market changes that have come about as a result of Russia’s war in Ukraine and soaring energy prices. Following these events, it expects homeowners will want to take control over their own energy supplies, and even try generating their own energy in order to protect themselves against rising costs in the future.
In the first three months of 2022 Enphase reported a 46% year-over-year rise in sales, with revenues coming in at $441m, beating analyst expectations of $432m. It posted revenues per share of $0.79, surpassing expectations of $0.67.
In the days following the announcement on 26 April, Enphase’s share price rose by almost 25%. However, the share price has since returned to roughly its original value.
Looking forward, analysts have a fairly bullish outlook on the California-based stock. Colin Rusch, an analyst at Oppenheimer, says the firm’s business in Europe is worth watching. He holds a $307 price target on the stock — almost double the 19 May closing price of $165.54.
SQM stock trending upwards in lithium boom
SQM is a Chile-based chemicals company and the world’s second largest lithium producer. It also has a significant presence in the potassium nitrate, iodine and thermo-solar salts markets.
Lithium is considered a key material for unlocking a future where renewable, electric power is the norm — the chemical is used in batteries to efficiently store energy, and they can be recharged. Salt is another wonder-material when it comes to energy storage and battery making.
In April, SQM said that it plans to spend a whopping $900m this year on boosting its lithium carbonate and hydroxide production capacity. The company expects to be producing 180,000 metric tonnes of lithium carbonate within the next few months. Its next goal is to get to 210,000 metric tonnes by early 2023.
A 2020 report by the World Bank found that battery mineral production levels would need to increase “by up to as much as five times” current levels in order to meet climate targets.
Closing at $95.23 on 19 May, the SQM share price is up 89% since the start of the year. It is
currently trading above the consensus price target of $93,64 among 14 analysts polled by MarketScreener, prompting investors to wonder if it is time for analysts to update their targets — or if the stock will fall back in line.
Can Vestas Wind Systems reverse its losses?
While many green energy companies are viewing price rises and geopolitical tensions as an opportunity to play for more market share, Denmark’s Vestas Wind Systems has spent 2022 warning that the outlook isn’t so good for wind turbine makers. The stock was down 21.1% year-to-date at the close on 19 May.
In January, it reported lower profit margins as a result of supply chain disruption increasing material costs. Low wind speeds have also had a negative impact on power generation.
“We expect the near future and at least 2022 to be heavily impacted by cost inflation, while the emergence of an energy crisis caused by geopolitics and fossil fuel volatility has also resulted in dramatic increases in energy prices,” Vestas said in a statement as it released preliminary results.
It is expected that supply chain problems will continue to ease this year, which will enable Vestas to improve its profit margins. Writing in InvestorPlace, contributor Larry Ramer noted that the company’s “overall profitability is strong”, with its order backlog at the end of Q3 coming in at €47.3bn, up from €13.4bn a year earlier.
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