Orsted leads the green revolution

The change of direction has proved savvy – the share price has more than doubled since listing on the Copenhagen exchange in 2016. Enjoying a 25 per cent global market share, Ørsted is now the world’s leading offshore wind developer. Its offshore wind farms in operation generated DKr8.6bn in cash profits (Ebitda) in the first nine months of 2019, with the ramp-up of new wind farms driving the 23 per cent year-on-year increase. With overall cash profits up almost a fifth to DKr12.9bn, the group is guiding to DKr16bn-17bn (excluding new partnerships) for the full year.

Governments are increasingly committing to decarbonisation and offshore wind has emerged as a frontrunner as technological advances and scale bring down costs and reliance on subsidies. With 5.6 gigawatts (GW) of offshore wind capacity currently installed, new awards and projects under construction mean Ørsted has almost secured its target 15GW by 2025. Its offshore wind operations are predominantly located in Europe, which accounts for around 80 per cent of the global market and is expected to grow at double digits to 2030. But the $510m (£387m) acquisition of Deepwater Wind provided a foothold in the burgeoning US market in 2018, and the group is eyeing further Asian expansion, especially as Japan and South Korea shift away from nuclear power. 

It’s not all plain sailing, though. The group announced in October that it had underestimated how much the “blockage” and “wake” effects would slow wind speeds and reduced the internal rate of return on seven of its assets under construction, but this should be offset by efficiencies and growth opportunities elsewhere. The group is still guiding to a compound annual growth rate for wind farm cash profits of20 per cent between 2017 and 2023.

Excluding DKr5.4bn in lease liabilities, Ørsted swung to a DKr6.7bn net debt position in the nine months to 30 September 2019 versus DKr2.2bn of net cash at the end of 2018. However, funds from operations as a proportion of adjusted net debt increased to 47 per cent, exceeding the 30 per cent target. With DKr200bn of capital expenditure expected between 2019 and 2025, at least three-quarters will be directed at offshore wind. Ørsted’s “asset rotation strategy” could help keep net debt in check, such as Global Infrastructure Partners’ purchase of a 50 per cent stake in Hornsea One for £4.5bn in 2018.

The Danish government currently holds a 50.1 per cent stake in Ørsted and will be able to reduce its holding from 2020 with unilateral support from all major political parties. In this (perhaps unlikely) event, Ørsted could become a takeover target.