EUR 850.00 For Business Accounts Only

Morningstar | Orsted 1Q Results Slightly Above Expectations, Maintains FY Guidance; Shares Rich

We reiterate our fair value estimate of DKK 450 per share along with our narrow-moat, stable trend ratings after Orsted released first-quarter results slightly above expectations. Shares look overvalued.

EBITDA decreased by 7% to DKK 5.1 billion, 4% above consensus expectations. The decrease was driven by c ustomer solutions whose EBITDA was more than halved on  a  positive one-off in the first quarter of 2018 and negative reevaluation of gas inventories due to gas price declines. Offshore wind's EBITDA was flattish as the positive impact of IFRS 16 was offset by higher development costs and lower partnerships revenues. Still, the division's EBITDA came in 5% above the consensus and was therefore the key contributor to the upside to the consensus. The upside stems from construction agreements whose EBITDA came in at DKK 0.8 billion, one third above consensus. However, construction agreements are typically not evenly weighted throughout the year so the good performance should not be extrapolated in our view. Besides, the management maintained its construction agreements EBITDA guidance of DKK 2.6 -2.7 billion for the year, in line with our estimate.

Orsted reiterated its 2019 EBITDA guidance of DKK 15.5 billion-16.5 billion, including a DKK 0.6 billion positive IFRS 16 impact that we have yet to add to our our DKK 15.7 billion estimates.

During the conference call, the management stated its intent to relaunch the process of the disposal of the Danish grid business in the second half and being well prepared to sign a agreement by the end of the year, which is positive. As a reminder: Orsted announced in January that the Danish government no longer supported the deal. Today management mentioned having broad political support again. Despite the January statement, we still factor in DKK 20 value creation per share from the premium that we anticipate from this disposal.

Orsted announced yesterday to have made the final investment decision for the Changhua 1 and 2a offshore wind farms in Taiwan totaling 900 MW of capacity. After the Taiwan government set a feed-in-tariff below Orsted's expectations with a cap on production late January 2019, the company had stated that it will seek to lower construction costs by renegotiating with the supply chain to make the project investable. Orsted stated yesterday that it succeeded. The group also reiterated its goal to farm-down a 50% stake in the project in 2020. The final investment decision of Changhua 2b&4 projects of 920 MW expected in 2023 appears now more likely. As a reminder, we factor in the commissioning of all the Changhua projects, namely 1.82 GW of capacity and the farm-down of 50% of Changhua 1 & 2a driving DKK 13 value creation per share on our estimates. Altogether, this final investment decision is a key step as it is Orsted's first big offshore wind project outside Europe and strengthens its position of global leader in offshore wind. The Taiwanese footprint could also help Orsted for upcoming auctions in Japan which targets 10 GW offshore and onshore wind power to be constructed by 2030.

Orsted's net profit decreased by 15% to DKK 2.6 billion, 11% above consensus expectations. The slide comes from the EBITDA decline and higher depreciation due to the commissioning of new wind farms. The upside to the consensus was driven by positive foreign exchange effect on the financial result.