Siemens' $18 billion energy spin-off falls in Frankfurt debut

4/4 © Reuters. Siemens Energy AG starts trading after IPO 2/4

By Christoph Steitz and Alexander Hübner

FRANKFURT/MUNICH (Reuters) - Shares in Siemens Energy opened lower than expected on their first day of trading on the Frankfurt stock exchange, as Germany's biggest-ever spin-off gears up for a challenging future independent from parent Siemens (DE:SIEGn).

Shares in Siemens Energy - which makes gas turbines, power transmission systems and holds a 67% stake in Siemens Gamesa (MC:SGREN) - opened at 22.01 euros apiece on Monday, giving the company a market value of 16 billion euros ($18.6 billion).

A source had previously said estimates were for a market valuation of between 21-22 billion euros.

Shares eventually closed at 21.21 euros, down 3.6% from the first price, after trading in a range of 19.21-22.98 euros during the session. This puts Siemens Energy's market capitalisation at 15.4 billion euros.

"I have repeatedly pointed out that we expect volatility to be high in the first few weeks," Siemens Chief Financial Officer Ralf Thomas told Reuters. "It's not a situation specific to Siemens Energy, it's the same with every spin-off."

Siemens Energy is Germany's largest spin-off ever, even surpassing Lanxess (DE:LXSG) and Covestro (DE:1COV), which were both spun off from Bayer (DE:BAYGn).

For Siemens AG (OTC:SIEGY) investors the deal has paid off: They have received one Siemens Energy share for every two shares they own in the former parent. Yet Siemens shares traded only 1.7% below Friday's closing price, a tiny discount given a substantial part of the conglomerate has been spun out in a separate listing.

Thomas said it would take until at least mid-October to get a first idea of how Siemens Energy, which competes with General Electric (N:GE) and Mitsubishi Heavy Industries (T:7011), will be valued.

Spun off from Siemens due to weak profit margins, the unit is expecting an adjusted margin of not more than 1% in 2020 on earnings before interest, tax and amortisation before special items, due to the coronavirus crisis and weaknesses in its onshore wind turbine business.

That should rise to between 6.5% and 8.5% in 2023, helped by more than 1.3 billion euros of cost cuts that a source said will include the shutdown of some of the group's production plants.

Siemens Energy expects sales to fall by as much as 1.4 billion euros to 27.4 billion euros this year, before growing again in a range of 2-12% in 2021.

"We are now doing everything in our power to seize the opportunities offered by the global energy transformation," Siemens Energy CEO Christian Bruch said.

Siemens AG has initially spun off 55% of Siemens Energy to shareholders but plans to reduce its remaining direct stake of 35.1% significantly within 12-18 months of the listing. The Siemens pension fund owns 9.9% in Siemens Energy.

Siemens CFO Thomas said the firm wanted to preserve a right to influence key decisions at Siemens Energy at least over the next five years, adding a stake of anywhere between 20% and 28% could achieve this.

($1 = 0.8580 euros)