Relatively cheap valuations and government incentives
should help shares of companies that install solar panels on customers’
roofs outperform investments in producers of photovoltaic cells,
The German solar market is estimated to become the
world’s biggest in 2009, with the European Photovoltaic Industry
Association (EPIA) forecasting up to 2.5 gigawatts in new
installations, more than a third of expected global volume.
are few positive triggers in the short term for an industry currently
suffering from overcapacity, tight credit conditions and a lack of
However, analysts said that solar retailers — who
instal solar panels on customers’ roofs — should benefit in Germany,
where demand is suffering less and financing conditions are better than
“In contrast to the project business, the German retail
market is developing quite promisingly and common expectations
regarding the total size of the German (Photovoltaic) market in 2009
are in a range of 2-2.5 gigawatt peak (2008: 1.5 gigawatt peak),” Sal
Oppenheim analysts wrote in a note.
The solar value chain consists
of upstream players—companies such as Q-Cells, LDK Solar and Sunpower
that are active in product manufacturing and distribution—and
downstream players, who deal with end customers and install the actual
solar products, including Centrosolar and Phoenix Solar.
customers access is becoming the most important asset for PV companies,
we favour system integrators over manufacturers in our coverage
universe,” BHF Bank analyst Goetz Fischbeck wrote in a note.
conditions for the funding-hungry solar industry have deteriorated
worldwide, with banks being less willing to provide credit lines,
hitting upstream players hard at a time when they are suffering from an
oversupply of cells and modules.
“The solar industry remains over
supplied and financing remains tight, especially outside Germany,”
Credit Suisse said in a note.
While Germany has held up relatively well, upstream players are not immune to the industry’s troubles.
Germany-based Q-Cells, the world’s biggest maker of solar cells, for
example, had to cut its 2009 sales outlook three times within less than
six months, as pricing pressure and oversupply hit the company.
favourable legislation regarding small end-customer oriented
installations—roof installations of solar systems receive higher
subsidies per kilowatt hour than big, free-field installations—and it
is obvious why German downstream companies are faring better.
the German incentives directed more favourably towards small scale
installations, we expect increasing focus around opportunities in the
fast growing BIPV (Building Integrated Photovoltaic) market,” Barclays
Capital analyst Vishal Shah wrote in a note.
“We expect the BIPV
market segment to remain an attractive niche segment where returns on
projects are still expected to be healthy on low subsidy regime.”
refers to solar systems that are integrated into the architecture of a
building, such as windows or walls made out of solar cells.
on the average of 10 European solar upstream and downstream players,
calculations show that both groups have gained about 70 percent since
European markets reached a 2009 low on March 9, according to Reuters
data, outperforming the FTSE clean tech index by about 13 percentage
But according to StarMine, which weights analyst estimates
based on their track records, the group of upstream players trades at
an average 14.8 times estimated 12-month forward earnings, a premium to
the downstream players’ 10 times.
HSBC analyst Burkhard Weiss, who
generally prefers larger silicon and wafer upstream players, said:
“From a valuation point of view, there are some interesting picks at
the moment in the downstream sector.”
German solar module maker Aleo
Solar is a case in point. Despite posting a loss for the first quarter
of 2009 — a dire one for the whole industry — analysts regard its
closeness to end-customers in Germany as a clear asset.
However, the company trades at the lower end of its peer group in terms of 12-month forward earnings.
believe Aleo may be more insulated due to its large proportion of sales
in Germany which to date has proved more resilient to the economic
downturn,” Goldman Sachs analysts wrote in a recent note, upgrading the
stock to “buy” from “neutral”.