Siemens is a global powerhouse in electrical engineering and electronics. A major attraction for investors here is its 4.5% yield. Siemens makes everything from robots, power generators and high speed trains to electricity transmission, industrial automation and diagnostic imaging equipment. Revenues are split 68% developed and 32% emerging markets.
Combined the firm boasts a €100bn order book and a research vault containing 53,300 patents. The immediate outlook is uncertain in light of the slowdown in Asia, difficulties in southern Europe and a couple of mistakes last quarter. The latter involved a €278m charge in the power transmission unit due to delays in constructing the infrastructure required to connect offshore wind farms to mainland Germany.
CEO Peter Lscher acknowledged that the company had "completely underestimated the complexity of these projects" and in hindsight it would have been better to attempt only one deep water wind project, instead of four at the same time. There was also a €640m write-down on its stake in Nokia Siemens Networks, the telecom network equipment joint venture that is undergoing a deep restructuring.
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"The previous quarter was not easy. Big capital projects are subject to more intense competition while our renewable energy division is set to continue to experience challenging conditions. That said, we are addressing the problems systematically," declared Lscher. In fairness, the occasional slip-up is almost inevitable given the company's size, geographical reach and diversity, and, at the investor update last month, Lscher said orders are set to pick up in the second half of the year, resulting in moderate sales growth.
Siemens (DAX: SIE), rated a BUY by AlphaValue
The City is forecasting revenues and underlying earnings per share of €76.8bn and €6.20 respectively, rising to €79.8bn and €7.10 in 2013. The balance sheet is rock solid too, with net borrowings at a very comfortable level. So I would value the group on a ten times earnings before interest, tax and amortisation (EBITA) multiple. Adjusting for the debt and a €7.5bn pension deficit produces an intrinsic worth of €78 per share.
The firm could be hit by a slump, euro troubles, and further project difficulties. But I rate the stock a buy. AlphaValue has a target price of €91, and second-quarter results are due out on 26 July.
Rating: BUY at €65 (market cap €58bn)
Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments. See www.moneyweek.com/PGI or phone 020-7633 3634 for more.
Paul gained a degree in electrical engineering and went on to qualify as a chartered management accountant. He has extensive corporate finance and investment experience and is a member of the Securities Institute.
Over the past 16 years Paul has held top-level financial management and M&A roles for blue-chip companies such as O2, GKN and Unilever. He is now director of his own capital investment and consultancy firm, PMH Capital Limited.
Paul is an expert at analysing companies in new, fast-growing markets, and is an extremely shrewd stock-picker.
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