We cut our fair value estimate for no-moat Orsted ORSTED to DKK 460 per share from DKK 540 after the group released 2024 preliminary results on Jan. 20 that included DKK 12.1 billion, or USD 1.68 billion, of impairment on its US projects.
2024 EBITDA was in line with guidance and our estimate.
Orsted will release final results on Feb. 6 and likely update its medium-term targets and funding plan. The shares appear materially undervalued.
Key Morningstar Metrics for Orsted
· Fair Value Estimate: DKK 460.00
· Morningstar Uncertainty Rating: Medium
· Economic Moat: None
· Morningstar Rating: ★★★★★
Trump hostility to offshore wind hinders tax breaks
The DKK 12.1 billion impairment represents 80% of the book value of the US offshore wind assets. DKK 4.3 billion is driven by the 75-basis-point rise in US interest rates in the fourth quarter. A decline in those rates would lead to an impairment reversal. DKK 3.5 billion comes from the impairment of Orsted’s US seabed leases due to “market uncertainties.”
We believe RWE RWE could follow suit. We don’t incorporate the seabed leases into our valuation, so this has no impact. The final DKK 4.3 billion is from additional costs and delays for the Sunrise Wind offshore wind project, driven by monopile foundations, a slower pace of turbine installation, and the offshore high-voltage direct current system.
Project completion is now expected in the second half of 2027 versus between 2026 and 2027 previously. Unlike the two other impairments, this one has a cash impact and therefore affects our valuation. In addition, we no longer assume that Revolution Wind and Sunrise will get the 10% bonus investment tax credit of the Inflation Reduction Act, given the hostility of the Trump administration to offshore wind.
Orsted Stock vs. Morningstar Fair Value Estimate
More bad news to come on February 6
On Feb. 6, Orsted will likely lower its 2026 EBITDA target of DKK 30 billion-DKK 34 billion. We forecast EBITDA of DKK 27.5 billion as we also expect a one-year delay for Revolution Wind, due to be commissioned in 2026. We project average funds from operations/net debt of 22% over 2025-30 with a bottom at 16% in 2026. This is short of the 30% targeted by Orsted and the 25% required by S&P to maintain the current BBB rating, which could be downgraded.
As pledged during his campaign, President Donald Trump signed an executive order against offshore wind on his first day in office Jan. 20. The order halts permitting of any new offshore wind projects and withdraws all areas within the offshore continental shelf from wind energy leasing. Existing leases like Orsted’s are not affected. Still, they are much less valuable because of the suspension of permitting for new projects. This was likely a key driver of the impairment. On the other hand, offshore wind projects under construction—Sunrise Wind and Revolution Wind—can go through.
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