Nordex

All,

As we are expanding to coverage of 20 names in the coming weeks, please find attached a slightly higher level analysis than what we usually produce. We are ready to talk to the industry and the situation in much further detail. But as this is a new name we thought we’d get it out first and drill further later. Another reason to some extent is the difficulty with which revenues can be forecast as well as the lack of comparability of past numbers due to the transition to IFRS15 and the lack of actual distress on the name.

Nordex implied prices / MW of order taken in have dropped sharply since the German market all but shut down in 2017. The aggressively won overseas business is very attractive from a strategic point of view and is needed to compensate for the lack of German / European business, where subsidies have been moving to a competitive auction model, driving down prices for all manufacturers.

We reconcile the order book with the likely lead times per jurisdiction and roll forward MW revenue and on that basis, while keeping cost per MW constant (most of the turbines have not changed). The drop in margin therefore rolls through the P&L in 2019. Eventhough our model likely overestimates the impact slightly, we are convinced it is directionally correct.

We concede that this view stands in stark contrast to the company’s own forecasts. However, we struggle to understand how the company can achieve its forecasts. At a current running yield of 7%, we consider a short attractive and are doing further work between now and March - the Q4 reporting date. Alternatively, the company also has public equity outstanding. The short cover on the shares is currently lower than it has been in the past 12 months.

Very happy to discuss thoughts, as always. We will be doing work on Senvion as well.

Wolfgang