March 16 (Bloomberg) — A rebound may be starting at Roth & Rau AG, the German maker of solar-panel equipment, as oil rises above $110 a barrel.
“We can barely cope with the inflow of orders,'' Chief Financial Officer Carsten Bovenschen said in a telephone interview from his office near the town of Chemnitz. “The order backlog is very high and a big part is already reaching well into 2009.''
Roth & Rau, whose machines provide the antireflective surface for about 40 percent of the world's solar panels, has fallen 45 percent this year in Frankfurt trading on concern there will be a shortage of polysilicon, the main material used in solar cells. While Roth & Rau said last month sales will increase 61 percent to 235 million euros ($367 million) in 2008, Bovenschen said that forecast is “very conservative.''
“Solar equipment makers are in a good position because of their growth potential and the limited number of competitors,'' said Pascal Schuler, who manages $2.5 billion for Swisscanto Asset Management in Bern, including Roth & Rau shares. “We're in for the long-term.''
Roth & Rau may rise 58 percent to 226 euros in 12 months, the average estimate of five analysts compiled by Bloomberg. It has a “fair'' value of 200 euros, Bovenschen said.
The shares trade at 19 times earnings, compared with Meyer Burger Technology AG's 42 times and 65 times for Centrotherm Photovoltaics AG, the solar-cell machine maker that first sold shares in October.
$3 Million Machine
Roth & Rau has won contracts to set up manufacturing lines for clients including Conergy AG, the second-largest German solar-power company, Bovenschen said. In January, China's Trina Solar Energy Co. placed a $33 million order. This year, Roth & Rau will finish installing a 25 million-euro production line for India's XL Telecom & Energy Ltd.
The company's 10-meter long machines, which cost as much as $3 million each, coat as many as 3,600 silicon wafers every hour. Roth & Rau's equipment uses so-called in-line technology, which lets solar modules stay on a conveyor belt during coating, reducing the risk of breaking.
“It looks like the market likes the inline method more and Roth & Rau is the market leader,'' said Harald Rehmet, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, who advises investors to buy the stock. “The sales mix will be more favorable for the margin this year.''
Solar-panel equipment accounts for more than 90 percent of Roth & Rau's revenue, with the remainder coming from trimming gear used in semiconductor and automotive industries.
Applied Materials
Demand for solar power grew at an average 40 percent in the past four years as government incentives in Spain, Korea, Germany and California encourage utilities and businesses to install systems to reduce pollution.
Applied Materials Inc., which competes with Roth & Rau, predicted last month that sales of gear used to make solar panels will climb fivefold in the next three years.
Santa Clara, California-based Applied Materials Inc., whose main business is chipmaking equipment, would “have the capacity'' to take over Roth & Rau, Bovenschen said. David Miller, an Applied Materials spokesman, declined to comment.
Revenue more than tripled last year to 146.2 million euros and net income reached 11.7 million euros, a record since Roth & Rau Chief Executive Officer Dietmar Roth, Silvia Roth and Bernd Rau founded the company in 1990.
The trio owns a combined 17.4 percent of the company, based in Hohenstein-Ernstthal, a Saxon mining town and the birthplace of Karl May, a best-selling author of stories set in the old American West, who died in 1912.
Production Cut
Last year, Roth & Rau opened a 7,500 square-meter (81,000 square feet) factory at its headquarters to add capacity for making equipment that process silicon nitride, the chemical that gives solar panels the antireflective surface.
Renewable Energy Corp., the largest producer of polysilicon, last month cut its 2008 output target by 13 percent to 7,000 metric tons, citing costs and delays at a new U.S. plant. The shortage of polysilicon remains a concern for Roth & Rau, Bovenschen said.
Roth & Rau plans to improve its profit margin, measured by earnings before interest and taxes as a percentage of revenue, by cutting purchase and logistics costs, Bovenschen said. The margin fell by one percentage point to 9.5 percent last year. Landesbank Baden-Wuerttemberg's Rehmet estimates it may rise to 9.9 percent in 2008. Bovenschen declined to give a forecast.
“While the sector is coming under pressure on the margins, this is not our main concern with Roth & Rau as the company can level this out by expansion and scale,'' said Yasmina Barin, an analyst at Banque Syz. in Geneva, which holds Roth and Rau as a “top position'' in its Oyster Global Warming Fund.
“When silicon is more available in a year or two, the capacities that are now being created will be operated to full,'' Bovenschen said.
