As Ørsted (DK:ØRSTED) raises DKr60bn (£7bn) to shore up its balance sheet and fund politics-damaged projects in the US, the Danish wind energy giant is being flagged by some analysts as a value opportunity.
Ørsted’s share price is down 75 per cent over five years, and by over a third this year.
The Trump administration’s pushback against green energy has added to the pain for investors on top of higher interest rates and supply chain challenges, which had already brought the group’s valuation crashing down from its 2020 peak. The tougher conditions have resulted in impairments totalling around DKr45bn since 2020.
Yet certain investment banks have taken the view that the current situation represents a buying opportunity.
Analysts at Berenberg recently raised their recommendation on the shares to buy on the basis that Ørsted’s “value should trump uncertainty”. UBS is also bullish. Its analysts called the group’s valuation “compelling” and pointed to improved growth potential after the rights issue. The bank expects earnings to rebound by next year to a level not seen since 2022.
A balance sheet boost
After announcing plans for a rights issue back in August, Copenhagen-listed Ørsted confirmed last week that it would offer 901mn new shares at DKr66.6 per share in a 15-for-seven issue. The sale is priced at an almost 40 per cent discount to the suggested theoretical ex-rights price, and will dilute shareholders by the same amount.
Management plans to use around DKr40bn of the proceeds to finalise construction of its Sunrise Wind project, which sits off the coast of New York. Funding was previously set to come from a partner buying into the project, but the raise was necessary after uncertainty over its future scared off potential investors and lenders.
The remaining DKr20bn will be used to improve Ørsted’s “capital structure and enhance financial flexibility”, which includes dealing with the uncertainty around its Revolution Wind project off Rhode Island.
The group will restart work on the project after a Washington judge this week granted a preliminary injunction in its favour. The Department of the Interior’s Bureau of Ocean Energy Management delivered an offshore stop-work in August for the project, which is 80 per cent complete.
Such headaches in the US mean the company will focus its offshore attention on this side of the Atlantic. Chair Lene Skole told investors at an extraordinary general meeting earlier this month that “in the future, Ørsted will primarily allocate capital to offshore wind in Europe”.
The new funding is also needed to maintain the group’s credit rating. S&P Global Ratings downgraded its view on Ørsted’s long-term debt in August to one notch above junk (non-investment-grade) status, citing “the challenges the company faces in executing its strategy and the lack of capex flexibility”.
Alongside the rights issue, the group is raising funds through asset disposals. It expects to bring in more than DKr35bn through divestments over 2025-26, via planned 50 per cent farm-downs at the Hornsea 3 and Greater Changhua 2 projects, and the complete disposal of its European onshore wind assets.
Analysts at RBC Capital Markets calculated that the rights issue gives Ørsted a funds from operations to net debt ratio of around 35 per cent, against the board’s target of above 30 per cent.
However, they warned that balance sheet “risk remains particularly if there is failure to execute on disposals given the DKr30.5bn of additional capex that would need to be absorbed”.
As market sentiment remains muted, something to watch out for is a potential merger with Equinor (NO:EQNR). The Norwegian energy group is a major shareholder in Ørsted after it took a 10 per cent stake last year.
Equinor, which has subscribed to the rights issue, pointed to the benefits of “a closer industrial and strategic collaboration” between the two groups.
The RBC analysts said that a combined entity could “more effectively combat rising costs in the industry, whilst also allowing Equinor to remove renewable assets from the balance sheet and providing Ørsted with additional financial stability”.
Equinor was hit by its own stop work order in the US in April, although it received permission to continue with the construction of its Empire Wind project off New York after five weeks.
Risks attached
Taking into account the rights issue, Ørsted trades on a discount to some major European renewable energy peers on an enterprise value to cash profits (EV/Ebitda) basis. RBC calculated a 2026 EV/Ebitda multiple of 6.8 times against a peer group average of 9.5 times, with Ørsted cheaper than RWE (DE:RWE), SSE (SSE) and Iberdrola (ES:IBE).
However, the majority of brokers are more bearish on Ørsted’s outlook than the likes of Berenberg and UBS. Consensus compiled by FactSet suggests the shares’ fair value is just 6 per cent higher than their current level.
Citi analysts have maintained a sell recommendation on the group, referencing the White House’s latest department-wide moves against wind energy projects. Analyst Jenny Ping said Ørsted shares would remain “under pressure as a result of such political risks”.
Wind energy capacity may still be rising – the International Energy Agency forecasts that wind will deliver 14 per cent of renewable global electricity generation in 2030 against 8 per cent in 2023 – but Ørsted’s ongoing travails show that investors aren’t in for an easy ride.