Bloomberg News

REC Leads OBX Higher as Profit, Costs Beat Estimates: Oslo Mover

July 19, 2012

Renewable Energy Corp. (REC), the solar- energy group grappling with falling demand, gained the most in almost three months in Oslo after its earnings beat estimates and it said it will continue cutting costs to improve profit.

Shares in REC gained as much as 11 percent, the most since April 25, and traded 9.7 percent higher at 2.15 kroner as of 9:55 a.m. in the Norwegian capital, making it the biggest gainer on the Oslo stock exchange’s benchmark OBX index today.

REC posted second-quarter earnings before interest, tax, depreciation and amortization excluding items of 230 million kroner ($38 million), beating the 122 million kroner average estimate of six analysts in a Bloomberg survey. The result was boosted by higher sales and lower costs, even as overcapacity curbed prices, which fell 8 percent in the quarter, REC said.

The company’s silicon unit was “especially strong, with continued cost improvement and higher than expected volumes,” Pareto Securities ASA analyst Eirik Vegem Dahle said in an e- mail. “Solar was also decent, with strong volumes but costs slightly above our expectations.”

REC, whose shares have fallen 99 percent since listing six years ago, is trying to improve its finances as excess capacity and weakening demand cut profit. The company, like its European peers Solarworld AG and Q-Cells SE, is under pressure from Chinese rivals that expanded capacity just as demand slowed, causing wafer and cell prices to plummet. Demand also shrank as France, Italy and Germany reduced subsidies to cap booming solar installations.

Takeover Candidate

REC is “definitely one of the better takeover candidates” because it’s competitive in terms of costs, ABG Sundal Collier Holding ASA analyst Andreas Strand said by phone from Oslo. “It’s always a matter of price but right now we haven’t seen any major activity in M&A in the solar market.”

While “there are always approaches” in terms of mergers and acquisitions, REC hasn’t seen anything “concrete,” Chief Executive Officer Ole Enger said in an interview in Oslo today. “There aren’t many companies that can afford to spend money on mergers and that’s holding it back,” he said, without commenting further.

REC cut the cost of producing wafers and modules during the quarter and announced plans for further reductions, “which is supportive to our investment case,” Pareto’s Dahle wrote. “We reiterate our buy rating and target of 3.3 kroner.”

Debt Worry

Solar energy companies including REC have cut costs and reduced capacity to align their operations with falling demand. REC, based at Sandvika near Oslo, earlier this month raised 1.3 billion kroner through a share offer even after failing to persuade holders of its convertible bonds to accept changes to their agreements.

“Operationally the report was good but still the cash flow compared to the major debt installments in 2014 are worrying us,” ABG’s Strand said. REC has 2.4 billion-kroner of euro bonds and 650 million-kroner of kroner bonds due to mature in 2014, according to its second quarter report.

Strand’s hold recommendation on REC is under review, he said today.

To contact the reporter on this story: Josiane Kremer in Oslo at jkremer4@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net


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