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Morningstar | Orsted Releases 2018 Results and 2019 Guidance in Line With Our Expectations; Shares Fairly Valued

We maintain our fair value estimate of DKK 450 per share along with our narrow moat and stable trend ratings after Orsted released full-year estimates and set 2019 guidance in line with our expectations, albeit below the consensus. The shares appear fairly valued.

2018 EBITDA increased by one third to DKK 30 billion, slightly above our DKK 29 billion and consensus' DKK 28.5 billion. As expected, the key growth driver was new partnerships owing to the farm-down of Hornsea 1 in the fourth quarter, which contributed to DKK 15.1 billion of EBITDA. Excluding new partnerships, EBITDA came in at DKK 15 billion, above our DKK 14.2 billion and DKK 13 billion-14 billion guidance. Upside to the guidance was driven by higher achieved renewable obligation certificates recycle value, lower costs, and higher construction gains. Those factors are mostly not sustainable. The key growth driver was the offshore wind farms, whose EBITDA grew 29% due to the commissioning of new farms. Net profit was DKK 19.5 billion, in line with our estimate though above consensus' DKK 18.2 billion.

Orsted set its 2019 EBITDA guidance at DKK 15.5 billion-16.5 billion, in line with our DKK 15.7 billion though below consensus' DKK 17.7 billion. Guidance includes a DKK 0.6 billion positive IFRS 16 impact linked to the capitalization of operating leases, which we have yet to factor in. The valuation impact of that will be neutral. Guidance's downside to consensus' expectations comes from the customer solutions business, for which the group guides for significantly lower EBITDA while the the consensus expects significant growth. We will not materially change our long-term forecasts upon this publication. We expect recurring EBITDA and net profit to increase by 11% and 30%, respectively, through 2027 due to new farms commissioning.

Orsted set 2019 capex guidance at DKK 21 billion-23 billion versus our DKK 21.2 billion. The 2019 dividend is set at DKK 9.75, up 8.3% and in line with our DKK 9.72.

On Jan. 31, the Taiwan Ministry of Economic Affairs released the features of the feed-in tariff for Orsted's 900-megawatt Greater Changhua 1 & 2a projects, whose final investment decision is pending for potential commissioning in 2021. We understand the announced feed-in tariff is well below the group's expectations, which states that it will seek to lower construction costs by renegotiating with the supply chain to make the project investable. A final investment decision will be made by the end of the second quarter. Our estimates point to a total value creation of DKK 13 per share for the 1.8 gigawatts of total Orsted Taiwanese projects. Should they be scrapped, we are confident that the group will be able to offset the impact by developing value-accretive projects elsewhere.