9M23: Costly adventure ends for Ocean Wind 1 & 2

Orsted announced the cessation of US offshore parks Ocean Wind 1 & 2 resulting in a massive impairment of DKK28.4bn ($4bn) booked in 9M23, plus an additional impairment of DKK8-11bn to be booked in the Q4 – a substantial increase from the initial DKK16bn ($2.3bn) announced in August. The FY23 EBITDA guidance remains unchanged in a DKK20-23bn range whilst the capex guidance has been reduced for the second time this year, by DKK4bn to DKK40-44bn.

Offshore outlook darkens, more than 50% of the US portfolio written-down

Orsted surprised the market with the announcement of an impairment series of up to DKK16bn ($2.35bn) related to US offshore wind assets. The group is facing many issues associated with additional delays, supply-chain disruptions, expected tax reduction not achieved, increased costs, and the impact of rising interest rates. The market’s expectations of offshore projects are high and Orsted reminds us that their execution is complex and that in the end it is all a matter of DCF with its multiple v

H1 23: Disappointing Q2 amid lower prices and poor wind conditions

After a weak Q1 which was negatively affected by lower prices and poor wind conditions, the Q2 results were down owing to the same reasons, with no compensation this year from new partnerships/farm-downs which had contributed DKK1.6bn in H1 last year. Orsted nevertheless confirmed the guidance provided for 2023 at the beginning of the year with EBITDA expected in a DKK20-23bn range. However, the Capex guidance has been officially lowered by DKK6bn for timing reasons, from DKK50-54bn to DKK44-48

CMD 2023: Higher leverage but no dilution to invest DKK475bn by 2030

Orsted confirmed its 2030 ambition to reach c.50GW of installed renewable capacity worldwide. To reach this objective and keep its No.1 position in offshore wind, they now foresee investing a gross amount of DKK475bn vs DKK350bn in the previous 2020-27 plan excluding JVs and Engineering, procurement, and construction partnerships (EPC).

Q1 23: lower prices but offshore has the wind in its sails

Orsted’s EBITDA registered a 27% decline in Q1 23 against the backdrop of a sharp decline in gas prices since Q4 22. Unfavourable spreads for power-condensing generation weighed on the CHP plants with EBITDA on Bioenergy & Other down by 79% yoy to DKK2bn. However, the normalisation in power prices allowed the group to reverse last year’s loss, due to ineffective overhedging positions, with a DKK2bn positive contribution to EBITDA.

FY22: after such a record year, what perspectives for 2023?

After a year against a backdrop of unprecedented volatility on the energy markets, Orsted set a record in 2022, with EBITDA up by 32% yoy to DKK32.1bn, including new partnership agreements, despite lower than expected results in Q4. The group benefited from growth in onshore and solar PV units, as well as Bioenergy & Other segment, which offset the lower earnings in offshore wind. Given a normalisation in energy prices, Orsted confirmed a conversative EBITDA guidance of DKK20-23bn.

Q3 22: another quarter supported by Bioenergy & other segment

Orsted reported another encouraging Q3 22 with EBITDA up by 313% to DKK12.317bn vs Q3 21, leading the Danish offshore giant to upgrade its FY2022 guidance by DKK1bn. Here again, the outlook was driven by a good performance in the Bioenergy & other segment, amid volatile energy prices, offsetting the decrease in offshore and onshore wind power generation. The group also conserves its dynamic in renewable investments which also supported in its EBITDA guidance increase.

Q1 22: a non-core beat

Orsted saw a strong Q1 22 with EBITDA coming in 14% above the consensus driven by the Bioenergy & Other segment. The CHP plants and gas-related activities took advantage of very high and volatile power prices to record extra gains. This is not sustainable. More interesting, it shows analysts’ inability accurately to estimate earnings in such an environment. We fly by the seat of our pants. At least the full-year guidance was confirmed.

FY21: Orsted limits the damage and reassures on its perspectives

As a continuation of the 9M results, Orsted saw a strong miss in the Offshore business (-11% vs consensus) amid low wind speeds, almost fully offset by the performance of CHP plants and gas-related activities. However, the group reassured on its outlook: FY22 guidance is in line with expectations, a promising position within the industry backed by the renewables expansion pipeline, and long-term wind speed perspectives that remain unchanged.

Q3 21: a slight miss in trompe l’oeil, offshore collapsed

At first sight, Orsted’s Q3 21 seems decent with EBITDA missing consensus by 2.6%. However, it hides an abysmal performance from the offshore activities which suffered from exceptionally bad wind conditions to stand 40% below EBITDA expectations, partially offset by the outstanding performance from CHP plants and gas businesses. More than ever, the volume risk is Orsted’s Achilles’ heel. Full-year guidance is reaffirmed in the low end of the range. Negative view confirmed.

H1 21: estimates beaten despite lower wind speeds

In the first half of 2021, Orsted’s EBITDA fell c. 3% above consensus as significant farm-downs and strong results from the CHP plants offset the significantly lower wind speeds for offshore assets. As a result, the group has confirmed its FY21 guidance but is now targeting the low end. Moreover, it increased its investment targets by 20% to reflect some M&A transactions, especially in onshore wind (BRI). Cautious view confirmed.

Back on shore ?

From a market point of view, Orsted’s CMD was disappointing. By accelerating towards more onshore wind and solar PV, the Danish group is expanding its asset base (capacity x3 by 2027) while reducing its gross return by GW (EBITDA x2.2 by 2027), one of its main competitive advantages. However, we consider Orsted’s strategy to be correct. The market wrongfully expected unrealistic growth prospects, and is now realizing that the premium applied to the stock is not sustainable. Cautious view confi

Orsted faced headwinds, profits dipped

The Danish utility has failed to meet expectations as it has been severely affected by negative wind speeds during the first quarter. In addition there was an array cable issue on several offshore farms, which together decreased offshore EBITDA by 44% yoy. The divestment of the distribution, residential customer and city light businesses last year also weighed. However, FY21 guidance is reiterated as the group should benefit from significant PPAs, CfDs awarded and farm-downs. In short, nothing t

FY20: in line

FY20 EBITDA was up by 4% to DKK18,124m, thanks to a strong Q4 (up by 8%, to DKK5,003m) and the promising growth of onshore wind (up by 44% over the year, to DKK1,131m). The FY21 EBITDA guidance of DKK15-16bn is disappointing, but there is the possibility of a positive surprise coming from partnership revenues. We confirm our negative recommendation, considering that the market does not integrate the growing competition.

Q3.20 - Down but in line

EBITDA was down by 18% to DKK3,360m due to lower EBITDA generation by offshore partnerships (down by DKK941m YoY) which took precedence over higher EBITDA generation from offshore sites (up by DKK454m YoY). The group confirmed its guidance, implying a Q4 in line with the rest of the year.

PROGRESSIVE: Oxford Metrics: Drivers to growth and catalysts for rerating

Oxford Metrics’ results for the year to 30 September show a business that is growing strongly, driven by long-term technology, economic and demographic trends across the life sciences, entertainment and engineering markets. The results are in line with the trading update given on 25 October (see our note) that showed revenue and adjusted PBT ahead of our, and market, expectations. With a confident management commentary on the outlook, we raise our estimates for FY24E and introduce forecasts for

ITM Power (ITM LN) - Trading update

ITM has released a trading update, providing guidance on its upcoming H1 FY 2024 results, and reiterating full year FY 2024 guidance.

Norcros - UK margins up materially, South Africa stabilising

Norcros’s compelling investment case was underpinned at the half year where underlying operating profit was down less than 3% despite material revenue pressure. Group operating margins rose 60bp, the UK business reported record underlying profits and Norcros continued to take market share in both the UK and South Africa. We believe that Norcros’s key strengths are underappreciated and that legacy issues, notably the pension deficit, have been resolved. We retain our estimates and value the share

Water Intelligence 10m Trading Update

Water Intelligence has reported a strong 10m Trading Update that indicates it is on track to meet expectations and we increase our FY23 estimates by +2%.

Titon Holdings+ (TON, House Stock at 80p) - Trading update

SP Angel Morning View: Gold powers through $2,100/oz on outlook for Fed rate cuts

discoverIE - Efficiencies driving margin, good forward visibility

discoverIE has reported an encouraging H1 2024 showing a resilient sales performance (flat in total, +4% CER) against strong comparators (+23% CER last year) in a difficult macro environment and an impressive increase in operating margins from 11.5% to 12.9%. Underlying EPS increased +8% and gearing of 1.6x is at the lower end of the target range. There remains significant opportunity for acquisitions, which – alongside targeting continued margin increases – provides upside potential to our fore

Morning Note – 5 December 2023

PROGRESSIVE: Oxford Metrics: Technology, strategy and EPS enhancing

Oxford Metrics (OM) today announced the acquisition of Industrial Vision Systems Ltd (IVS) for £8.1m, funded from cash and 1m new shares. IVS operates in industrial applications of smart sensing, with machine learning technology for quality control in the manufacturing environment. The deal is immediately earnings enhancing and we are raising our forecasts for FY24. This is an exciting first M&A application of the funds from the Yotta disposal. The deal appears technologically and strategically

UK-Listed Energy Sector: Review of the UK oil and gas landscape – why the country needs it, current policy and tax

The front of this note takes a look at the UK oil and gas sector, why domestic production is advantageous, what the main political parties think, and what could happen going forward. The latter part contains a review of the companies in our coverage – some that are UK centric, which give exposure to the note’s wider theme, and others that are focused elsewhere.

PROGRESSIVE: SDI Group: Acquisition of Peak Sensors

SDI Group has announced the acquisition of Peak Sensors, a UK manufacturer of temperature sensors, for an estimated £2.4m (£2.3m less cash). The initial cash consideration is £1.58m, with a further c.£0.82m payment due shortly after completion. The deal will be funded from SDI’s revolving credit facility. As at 30 September, SDI had c.£1.78m cash, £15.1m bank debt and £9.9m undrawn bank facility excluding the accordion, providing considerable financial flexibility for the group. The acquisition

TClarke - £1.1bn order book and delivery protection measures

TClarke has confirmed it is on track to deliver its three-year growth-plan target of £500m of revenues in 2023E (up from £426m in 2022). It detailed a 99% increase in the order book to £1.1bn alongside a further £1bn in opportunities. Reflecting the current challenges in the construction sector, management has made a number of strategic decisions to preserve the business’s strong market and financial position. These include changing some supply-chain partners mid-contract to protect project comp

Supreme (SUP LN) - Initiation of coverage

FY24 Interim results: A record H1 performance delivered revenue growth of 62.5% to £105.1m (H1 FY23: £64.6m), with growth across all divisions: Batteries +1.4%, Lighting +21.8%, Sports Nutrition & Wellness +17.5%, Vaping +32.5% (ex- ElfBar) and Branded Distribution +798.9%, which includes revenue of £26.4m from the ElfBar distribution opportunity, commenced in June. Adj. EBITDA of £15.2m is +88.0% (H1 FY23: £8.1m) benefitting from higher sales, and operational efficiencies. Adj. PBT of £12.6m is

Van Elle Holdings plc (VANL LN) - Trading in line with FY24 expectations, completion of Rock & Alluvium acquisition

Van Elle has released a pre close trading update for HY24 confirming it is trading in line with expectations. Revenue is down 16% yoy to £68.0m which is broadly in line with Zeus expectations for FY24 of 12.1% decline in revenue, pre the addition of Rock & Alluvium. Estimates are updated on the back of the completion of the deal increasing revenue by 6% in the current year to £138m and 11% to £155m in FY25. Zeus leave profit before tax estimates unchanged at £5.0m in FY24 due to integration cost

Morning Note – 28 November 2023