TICKERS: ORSTED; DNNGY
Coverage Initiated on Wind Farm Firm Poised for 'Highly Profitable' Growth
Source: Streetwise Reports (7/7/20)
The investment thesis for Ørsted A/S is presented in a Pareto Securities report.
In a July 2 research note, analyst Tom Erik Kristiansen reported that Pareto Securities initiated coverage on Ørsted A/S (ORSTED:NDAQ; DNNGY:OTCMKTS), "the world's largest offshore wind operator" with a Buy rating and a DKK900 per share target price. Ørsted's current share price is DKK803 in comparison.
Kristiansen made a case for why this Denmark-headquartered firm makes for a solid investment.
One, the renewable energy firm, which develops, constructs, owns and operates offshore wind farms, leads the industry. With its 24 producing assets and an existing pipeline, it holds 30% of the market share.
Ørsted is on track to grow 15% per year, to 15 gigawatts (15 GW) by 2025, and is ahead of schedule in that regard. Already, the company met its 15 GW by 2025 offshore goal but is about 3 GW shy of reaching its 5 GW onshore target.
Expected growth "is expected to be highly profitable" and the outlook "warrants higher pricing" for Ørsted, Kristiansen purported. The company guided to a 10% return on capital employed between 2019 and 2025 and 80%-plus of EBITDA between 2020 and 2040.
Further, those projections are protected by "fixed price contracts with government in developed markets or large corporations as counterparties," which alone can support the current share price over time, noted Kristiansen and speaks to Ørsted's compelling business model.
Also positive for the company, Kristiansen pointed out, is that the offshore wind market is expected to grow this decade at a compound annual growth rate of about 20%. Even with increased competition and saturation of certain markets in the future, Ørsted should realize additional value because of its strong development track record and experience.
Pareto estimates that each gigawatt that Ørsted adds will increase its valuation by more than DKK15 per share and that valuation could reach DK1000 per share over the next couple of years. As for 2021, it is forecast to be "a massive year for tender activity," added Kristiansen.
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