Trump vows to stop offshore wind development with executive order on d...

Over the weekend, former US president Donald Trump said he would issue an executive order targeting offshore wind on his first day as president if elected. A president can issue an executive order directing a study of the impact while halting permitting of new projects. While this could negatively affect US permitting and thus the growth of offshore wind in the country, all other elements for the wind farms are determined on a state level. Hence, permitted wind farms would likely see a limited e...

Positive read-across from OX2 offer

This morning, renewable energy project developer OX2 announced it has received an offer from infrastructure fund EQT at a 43.4% premium to Friday’s close. We view this as further evidence of a greater willingness to pay for renewables in the private markets than the public ones, and thus believe the bid offers a positive read-across for renewable energy companies with strong development capabilities in the Nordics/Northern Europe, such as Cloudberry and Bonheur. We also believe it could be posit...

Scatec (Sell, TP: NOK72.00) - Take profits

Declining prices of solar parks looks likely to result in higher growth opportunities in the years ahead. However, we still see growth possibilities limited by Scatec’s leveraged balance sheet, with a 2024e NIBD/EBITDA of 5.8x. With the company highlighting assets in non-core markets as the most likely to be sold during the year, we are concerned leverage will remain high. With underlying results and guidance only slightly above expectations, we consider the ~20% share price increase over the pa...

Scatec (Hold, TP: NOK72.00) - Awaiting deleveraging

We expect El Niño to continue to hamper power production in the Philippines, and estimate proportionate Q1 EBITDA of NOK619m, 3% below consensus (results due at 07:00 CET on 30 April). With still-high leverage (2024e NIBD/EBITDA of 6x), we await news on the plan for asset sales, which we believe could spark excitement in the capital markets. However, we reiterate our HOLD and NOK72 target price, as we see too-low cash flow generation to justify a premium to our SOTP.

Scatec (Hold, TP: NOK72.00) - Larger asset sales in sight

The reported Q4 EBITDA beat of 15–17% versus our estimate and consensus was mainly related to one-offs, but the stronger than expected margins in D&C were a positive. After having divested small assets in non-focus markets, the sale of large assets in non-core and core markets is on the table. We consider this prudent as it would help realise the value of its operative assets and allow for deleveraging, which should be warranted with a 2024e NIBD/EBITDA of 6.1x. We reiterate our HOLD, but have r...

Scatec (Hold, TP: NOK70.00) - Consensus a tad too high

We believe a combination of weak hydrology and lower power prices in the Philippines and slightly slower construction progress will weigh on Q4 Power Production EBITDA; our forecast is 5% below Bloomberg consensus. Although expecting improving operations in the Philippines for 2024, we are 6% below consensus for the year on Power Production EBITDA and thus expect smaller reductions. We reiterate our NOK70 target price, but have upgraded to HOLD (SELL) as the stock is trading largely in line with...

Supportive changes to Norwegian wind energy resource tax

Last night, the Norwegian Parliament agreed on an effective resource tax on wind energy of 25% versus the 35% previously proposed. At first glance, it seems the scheme will now be investment-neutral for new wind farms, which was a key pushback from the industry to the previous proposal. Among the renewable energy producers under our coverage, the new resource tax scheme will benefit Cloudberry and Bonheur. While some details are still unclear, we estimate it will increase the value of Cloudberry...

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...

Scatec (Hold, TP: NOK62.00) - A disciplined message

We have a positive view of Scatec’s disciplined message to cease dividends and align its growth targets to its liquidity situation (annual equity investments down ~65% with a new growth target). Hence, we now estimate growth should be fully funded. Yet the company’s capital structure remains sub-optimal, with NOK8.4bn of debt at the corporate level on top of SPV debt, which significantly lowers cash flow generation at current interest rates. Hence, we consider its intention to make additional de...

Scatec (Sell, TP: NOK55.00) - Capital structure reset warranted

We believe rising interest rates have fuelled investor concerns about Scatec’s leveraged capital structure, with NOK8.6bn of debt on the corporate level (with ~80% on floating interest rates) on top of highly geared subsidiaries. Despite some additional liquidity from asset sales, the company is still not fully funded to build the projects in its backlog, on our estimates. We reiterate our SELL and have lowered our target price to NOK55 (65) on higher long-term interest rates and a lower valuati...

Scatec (Sell, TP: NOK65.00) - Fairly neutral Q2 report

We consider Scatec’s Q2 report fairly neutral, but have made small changes to the timing of projects under construction and in its backlog. As a result, have raised our 2023e EBITDA by 5% assuming more of the remaining NOK1.8bn in D&C revenues is recognised in the year, and cut our 2024e EBITDA by 2% to reflect some slower backlog progress. The stock is trading ~20% above our valuation of the existing business and visible growth, which we consider unwarranted, given the limited capacity on the b...

Scatec (Sell, TP: NOK65.00) - Philippines set to dampen Q2

We expect Q2 proportionate EBITDA of NOK1,028m (1% below consensus of NOK1,036m), reflecting a lacklustre quarter in the Philippines (weak hydrology and no capacity payments) and severance payments related to the cost-cutting programme, but also NOK313m non-cash gains from the Upington sale. We have cut our 2023e proportionate EBITDA by 8% to reflect our expectation of the Philippines remaining weak in Q3 and lower gains from asset sales. We reiterate our SELL, but have raised our target price t...

Northern Lights

Northern Lights

Scatec (Sell, TP: NOK56.00) - Hit by higher interest rates

Rising interest rates have reduced Scatec’s cash flow available for growth, and we estimate that the company is no longer fully funded to build the projects in its backlog. We see a funding gap of NOK4.1bn for the 2027 growth target, corresponding to 36% of its current market cap. Although asset sales seem the most likely near-term funding source, we would not rule out the need for fresh equity given the size of the gap. Scatec is trading at a 29% premium to the value of existing business and vi...

Scatec (Sell, TP: NOK56.00) - Take profit

As Scatec’s solid Q1 report was due to FX and higher than expected power production (that tends to fluctuate YOY), we have not changed our view on the stock and have made only small estimate changes. Hence, we consider the 13% share price rise on Friday an overreaction and believe investors should take profit. We reiterate our SELL and NOK56 target price and note the stock is trading 34% above our SOTP, which reflects operating assets and the growth the company has the balance sheet to fund.

Northern Lights

Scatec (Sell, TP: NOK56.00) - Near-term positives

Although we retain our negative view on Scatec, we expect a couple of tailwinds near-term. We expect Q1 to benefit from FX trends and favourable spot prices in the Philippines, and have raised our full-year EBITDA estimate by 7% based on a higher contribution from Upington before the announced sale closes, and FX movements, and expect similar revisions by consensus. We reiterate our SELL and NOK56 target price.

Northern Lights

Scatec (Sell, TP: NOK56.00) - Debt market confirms higher cost of capi...

Scatec’s new NOK1bn bond has been priced at 3m NIBOR+660bp, and we believe the interest rate of 10%+ will serve as a reality check for investors regarding higher debt costs going forward. With USD93m of debt due in Q1 2024, we consider the refinancing necessary, albeit at a high cost. We also believe the higher incremental debt cost should provide some read-across to the company’s cost of equity, as this should be at a premium. The current share price implies a cost of equity of ~10.5%, i.e. on ...