Orsted Earnings: Finally Ends a Long Streak of Bad Results; Shares Undervalued

We maintain our DKK 780 fair value estimate after narrow-moat Orsted ORSTED released first-quarter results above the consensus it polled on the bottom line thanks to a positive tax one-off. While the group’s EBITDA was in line with expectations, earnings from offshore wind farms in operation beat them for the first time in two years as the core business had been plagued by poor wind conditions in 2021 and losses related to an ineffective hedging strategy in 2022. Shares look undervalued.

First-quarter EBITDA including new partnerships decreased by 27% to DKK 6.9 billion as the year-ago quarter was boosted by a capital gain related to the farm-down of Borkum Riffgrund 3. Excluding new partnerships, EBITDA was flat as offshore wind growth was offset by a fall in bioenergy’s profitability.

Offshore wind farms’ EBITDA jumped by 58% to DKK 5.9 billion thanks to the ramp-up of Hornsea 2 and Greater Changhua 1 and 2a farms and the material negative impact of overhedging in the year-ago quarter. Those tailwinds largely offset wind speeds that were slightly slower than last year. Onshore’s EBITDA decreased by 2% as the commissioning of new capacity was offset by lower power prices and a price cap in Ireland and the U.K. Bioenergy’s EBITDA tumbled by 79% chiefly on lower power prices.

Net profit fell by 44% to DKK 3.2 billion due to the Borkum Riffgrund 3 farm-down last year. Still, the bottom line was 7% above expectations thanks to the reversal of a U.S. deferred tax liability related to the agreement to acquire PSEG’s 25% stake in the Ocean Wind 1 project.

Orsted maintains its guidance for 2023 EBITDA excluding new partnerships in a DKK 20 billion-DKK 23 billion range, below our DKK 23.7 billion that we maintain.