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Orsted analysis: the green darling of energy investors

Jessie Ramsdale
13. 4. 2023
6 min read

Green energy is one of the hottest topics today. Oersted is often mentioned in connection with this sector. Where does this giant stand and what can we expect from it?

Orsted $ORSTED is a Danish energy company founded in 1983. It is one of the world's leading companies in the transmission and distribution of electricity and the provision of energy solutions.

The company focuses on four key areas:

Electricity transmission and distribution - Oersted owns and operates extensive electricity transmission and distribution networks in Denmark and Sweden. It is one of the world's leading companies in this field.

Renewable energy - Oersted invests in and operates offshore and onshore wind farms. It is one of the largest operators of offshore wind farms in the world.

Customer solutions - Oersted offers comprehensive energy solutions for homes, businesses and public entities. It focuses mainly on decentralised and sustainable energy.

Energy sales - Oersted supplies electricity and gas to more than 1 million households and businesses in Denmark, Sweden and Germany.

Oersted is a very successful and well-established company with a long tradition. It is a technological leader in the industry and a pioneer in green energy. It has stable profitability, growing revenues and is a low-risk investment. Oersted shares are traded on the Copenhagen Stock Exchange.

Sector

Oersted operates in the energy sector, which is currently undergoing a major transformation. There is an increasing shift towards renewable energy sources such as wind and solar to reduce greenhouse gas emissions and achieve sustainability. This has implications for traditional fossil fuels such as coal and gas and the large integrated energy companies that have long depended on these fuels.

Oersted has prepared well for this transformation and has invested heavily in renewables, particularly offshore wind, in recent years. Today it is one of the global leaders in offshore wind energy. As a result, the company is well positioned to benefit from the long-term growth of this sector.

The energy sector faces enormous challenges, but also opportunities in sustainability and innovation. Companies that can respond to these changes in a timely manner will have great prospects for success. And that is exactly what Oersted has done, transforming itself from a traditional energy player to a global leader in offshore wind energy.

https://www.youtube.com/watch?v=9VAJDMyhevA

Competition

Vestas Wind Systems - Vestas is a global leader in wind power and wind farms. Like Oersted, it has a strong focus on offshore wind energy and competes mainly in the supply of wind turbines for offshore wind farms.

Siemens Gamesa- Siemens Gamesa is another large wind turbine manufacturer and one of Oersted's main suppliers. The two companies thus also compete on the technology supplier side. However, Siemens Gamesa also has its own renewable energy projects, including offshore wind.

RWE - German energy company RWE is one of the largest operators of offshore wind farms in Europe. Like Oersted, it operates and develops its own offshore wind farms and is therefore a direct competitor.

Other large integrated energy companies investing in renewables such as E.ON, Engie, Enel and Iberdrola are also competitors.

Current situation

ORSTED's performance is in stark contrast to that of the S&P 500 Global Clean Energy Index, which is up 11% for the year. Interestingly, Orsted is the eighth largest position in this index.

On the other hand, at least the P/E of 17.6x is not high. It is even lower than the 22x for the S&P 500 index and also lower than the 20x for the utilities sector. Another figure that Orsted reports is gross investment. For the full year, they amounted to DKK 37.4 billion, which is actually less than the DKK 43 billion forecast.

There has been a near doubling of its long-term debt in 2022 to over DKK 60 billion, which stands out when looking at its numbers. However, even this is by no means a red flag for the company. The long-term debt-to-assets ratio is below 0.2x and the long-term debt-to-equity ratio is also at a very acceptable 0.6x. The interest coverage ratio is also at close to 4x, indicating sufficient liquidity to pay interest obligations despite the increased debt.

However, some other ratios and multiples are higher than those of competitors. Given the potential for wind power expansion, this premium is justified.

Expected market size for wind power. Source

Orsted is certainly a volatile company. The way the company operates ensures that there is considerable unevenness in the results, which gives the company a volatile nature over time. Unfortunately, this does not mean that the 2 year returns have been good.

The outlook for offshore wind is now quite high, particularly as a result of the reaction to the Russian invasion of Ukraine which has created problems with further access to Russian oil and gas. Wind energy (especially offshore) is one of the main ways to address Russia's energy shortages.

As a result of the above, demand for offshore wind has accelerated significantly, with annual construction expected to exceed 20 GW by 2030 and more than 30 GW between 2030 and 2035. This means that over the next decade, installed global offshore wind capacity will grow by more than 20% annually.

The wind power industry has been significantly impacted by material supply and staffing issues related to COVID, the trade war, inflation and significant tariff issues. Conditions for the offshore wind industry are changing dramatically for the better.

The market has yet to absorb the global scale of the upcoming offshore wind business. Orsted is well positioned to strengthen its position as a major global company. Of course, there is a lot of concern in the markets at the moment, which may mean even more attractive entry opportunities for investors who are paying attention to the electrification of the energy sector, but I think Orsted deserves to be on the watch list for investors interested in benefiting from the major energy changes now taking place.

Disclaimer: This is in no way an investment recommendation. It is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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