Third Point hedge fund acquires stake in Siemens Energy

Investing.com -- Dan Loeb’s Third Point hedge fund has revealed the acquisition of a stake in Siemens (ETR:SIEGn) Energy in the third quarter of 2024. The company, a maker of gas turbines, electrical grid equipment, and wind turbines, was spun off from Siemens AG (OTC:SIEGY) in 2020.

Between 2022 and 2024, Siemens Energy’s wind business suffered operating losses of approximately €7 billion due to component failures and poorly negotiated commercial contracts. This situation is believed to have led to a considerable decrease in the company’s stock price, despite positive fundamentals in its other business sectors. Third Point’s research suggests that the issues with the wind business have been adequately accounted for, and risk management has markedly improved.

Third Point cites the resurgence of the gas turbine business and the secular growth in grid products as the primary attractions of the investment. The growth in renewable energy generation, electric vehicle charging, and data centers have significant implications for Siemens’ products.

Renewables, which typically operate at 20-30% capacity and require large land areas, are often situated far from major demand centers. This necessitates connecting 3-4 times the amount of generation over longer distances compared to traditional dispatchable generation like coal, nuclear, or gas.

Furthermore, the electrification of transport, along with demand from data centers, is driving growth in overall peak power demand. Regardless of the increase in renewable generation, the growth in peak power demand requires an increase in dispatchable generation for periods when renewables are not available.

These two trends have resulted in a marked increase in demand for grid equipment and gas turbines, two of Siemens’ core businesses. Supply shortages and extended lead times have led to a favorable pricing environment after a decade of slow growth.

Siemens Energy has amassed a €123 billion backlog, equivalent to 3.6 times its annual revenue, providing a clear view into outsized organic revenue and earnings growth. Third Point projects that Siemens Energy’s earnings power will surpass €5 per share by the end of the decade.

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