Vestas: making new fans

In the UK, next to announcing a rave in your garden, nothing gets the neighbours on the phone quicker than proposing a wind farm on your land. Unpopular seems a fair description. Onshore wind farms have received 15 times more planning application rejections than offshore farms.

The rest of the world is less sensitive. That is good news for Vestas, the Danish wind turbine maker. Its first-quarter earnings report on Wednesday delighted the market with better than expected profits.

Its shares rallied 5 per cent. Orders grew admirably, notably in Brazil and China. Measured in generation capacity, the jump was nearly 50 per cent year on year. Even better, the average selling price rose to €0.92m per megawatt of capacity, the second consecutive quarterly improvement. Vestas reported its best group return on invested capital, at nearly 44 per cent. That is three times what it was just a year ago.

Prices were particularly firm in Brazil. A backlog of projects for wind farms has left Vestas' competitors, such as Gamesa, struggling to meet demand there. But Vestas had plenty of spare capacity, and new production will bring down its Brazilian unit costs quickly. All good news, which presents a new problem for the company: what to do with the cash. Vestas has no net debt. It only began paying a dividend in 2014, its first year in four without a loss. It now holds the equivalent of nearly a fifth of its market value in cash. That seems a lot.

Understandably, management wants a financial buffer against any drops in orders such as the one that occurred a few years ago. Then, the company's orders withered just as it completed an expansion, especially in the US. Years of pain followed. But Vestas has trimmed its costs and changed its chief executive since.

Vestas needs to make a plan for its excess cash, or its neighbours in the investment community will get noisy. A higher but still sustainable dividend sounds about right.

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