EUR 850.00 For Business Accounts Only

Morningstar | Orsted Is Fit to Beat Its Medium-Term Wind-Capacity Growth Targets

After taking a fresh look at Orsted, we have raised our fair value estimate from DKK 450 to DKK 550 per share. Main drivers behind the increase are higher realized cash flows than we anticipated in 2018, strengthening of the British pound against the euro since our last update, and 3.5 gigawatts of additional offshore wind capacity by 2025.

We have raised our earnings per share estimates by 13% on average through 2028 chiefly because of the additional 3.5 GW of capacity, implying a 21% EPS CAGR through 2028, the highest among European utilities. Previously, our offshore capacity estimates in 2025 were in line with the group’s guidance, but our capital expenditures budget of DKK 150 billion was below the group’s DKK 200 billion, though factoring in unit construction costs in line with the group’s indications. We think this discrepancy is due to Orsted’s typical overly conservative stance. Accordingly, we believe it is sensible to increase the investments to DKK 200 billion and capacity forecasts. Out of the 13.2 GW of incremental gross capacity that we now expect by 2025, 6.7 GW are either under construction, sanctioned, or awarded in Europe, Taiwan, and the U.S. East Coast. In addition to these 6.7 GW, we factor in 6.5 GW of capacity that have yet to be awarded. Altogether, based on the operating and capital cost indications provided during the November 2018 Capital Markets Day, we estimate that Orsted will achieve a rate of return of around 8.5% on the 13.2 GW of incremental capacity.

We confirm our narrow moat along with our stable trend ratings. We see generous subsidies as a significant intangible asset.

We calculate that subsidies granted to wind farms in operation and under construction or sanctioned have a weighted-average (by net capacity) remaining lifetime of around 15 years. Our forecasts point to an average group return on invested capital of 10.4% through 2028, comfortably above the group's 6.7% weighted average cost of capital. The potential reduction in the intangible asset moat source implied by declining subsidies in future auctions will be offset by an increasing cost advantage due to the drop in construction costs driven by technological progress and larger turbines.