Integrated Wind Solutions, a Pick-and-Shovel Investment for Offshore Wind Energy
Exploring the risks and potential of this small-cap stock
As the global push for renewable energy gains momentum, offshore wind energy is emerging as a critical player in the transition to cleaner power sources. Amidst this burgeoning sector, Integrated Wind Solutions (IWS) stands out as a compelling investment opportunity. Unlike companies that manufacture wind turbines or develop wind farms, IWS provides essential support services to the offshore wind industry, making it a quintessential pick-and-shovel play.
In this article, we delve into IWS, examining its business model, evaluating its growth prospects, and weighing the potential risks and rewards associated with investing in this small-cap stock.
Company overview
Integrated Wind Solutions (IWS) is an offshore wind service company specializing in the installation, commissioning, and operation phases of wind farms. Utilizing its skilled workforce and fleet of CSOVs (Commissioning Service Operation Vessels), IWS ensures efficient and effective execution.
There are 3 Business Units.
IWS Service
IWS Service focuses on scheduled and periodic IMR (Inspection, Maintenance, and Repair) activities for wind farms. This includes:
Above Water IMR: Maintenance of blades, hydraulic systems, and other components.
Below Water IMR: Maintenance of cables, foundations, and underwater infrastructure.
IWS Service utilizes the company’s specialized fleet to carry out these operations. For now, IWS Service represents the vast majority of the revenues. However, this will change once the IWS Fleet becomes operational.
IWS Fleet
IWS Fleet manages the operation of the company's CSOVs, which represent a significant portion of the company's financial and capital expenditure.
Fleet Composition: The fleet consists of six ships specifically designed for offshore operations, providing cost-efficiency with each vessel costing €48 million, which is 30% less than traditional designs.
Construction Timeline: All vessels are expected to be built by mid-2025.
Client Portfolio: The order book is rapidly filling, with four major clients including Siemens Gamesa, which accounts for 58% of the orders.
Peak Wind
Peak Wind is a renewable energy specialist providing advisory, intelligence, and asset management services across eight countries. With a team of 190 experts, the company excels in various business areas:
Generation Consulting
Services: Operational excellence, OPEX optimization, due diligence
Focus: Enhancing the efficiency and profitability of renewable energy projects through strategic consulting and analysis.
Power-to-X Consulting
Services: Project development, design, procurement, execution
Focus: Transforming renewable energy into other forms of energy, such as hydrogen, through innovative project development and comprehensive execution plans.
Technology
Services: Asset integrity, data intelligence, cybersecurity
Focus: Ensuring the reliability and security of energy assets by leveraging advanced technologies and data-driven insights.
Asset Management
Services: Financial, technical, commercial, operational management
Focus: Providing holistic management solutions to maximize the value and performance of renewable energy assets.
CAPEX and financing
One of the key aspects of Integrated Wind Solutions (IWS) is the substantial capital expenditure required for its fleet of six CSOVs. This significant investment is crucial for the company's rapid growth but also introduces considerable financial risks. In 2024, IWS is expected to incur a debt of approximately 1,175 million NOK, which represents a debt-to-EBITDA ratio of 7.4x. By 2025, the debt is projected to rise to 1,957 million NOK, lowering the ratio to 5.5x EBITDA. However, the company anticipates a reduction in debt to around 1,727 million NOK by 2026, which will further decrease the ratio to 3.2x EBITDA.
This financial profile presents both major risks and significant opportunities for IWS. On the opportunity side, the fleet is integral to the company’s ambitious growth strategy, with projections indicating an increase of over 50%. The rapidly filling order book highlights strong market demand and future revenue potential. Additionally, the specialized design of the CSOVs serves as a substantial barrier to entry for competitors, giving IWS a competitive edge.
Conversely, the high levels of debt pose considerable risks. For a relatively small company, managing such significant debt could become challenging, particularly if faced with execution issues, uncertainties in the offshore wind market size, or intensified competition. These risks must be carefully managed to ensure the company's financial stability and continued growth.
Ownership structure
IWS owns 97% of IWS Services. Peak Wind is a recent acquisition, and its shares will soon increase to nearly 50%.
Sumitomo Corporation, a Japanese industrial giant, will soon acquire 25% of IWS, providing significant CAPEX funding of approximately €60 million. This transaction values IWS Fleet at €176 million. Consequently, IWS's 74% stake in IWS Fleet will be worth €131 million. The current valuation of IWS is €159 million.
This strategic partnership may also facilitate further expansion for the company.
Outlook
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