Scatec (Sell, TP: NOK70.00) - Lower interest rates not enough
Scatec looks set to benefit from lower interest rates, as the highest leveraged renewable energy producer in our coverage. Based on forward interest rate curves, we expect floating interest rates on corporate debt to decline by ~175bp by 2026, and cash flow to equity from the underlying business to approach 6%, versus 4-5% at current interest rates. However, we find this still too low for Scatec to be valued attractively on cash flow yields. While we have raised our target price to NOK70 (62) on a lower CoE and a NOK3/share contribution from growth, with higher cash flow set to finance growth at lower interest rates, we consider the 27% share price gain in the past two months an overreaction and have downgraded to SELL (HOLD).
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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