Key Morningstar Metrics for Orsted
- Fair Value Estimate: DKK 283
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: None
- Morningstar Uncertainty Rating: High
On Aug. 22, the US Bureau of Ocean Energy Management issued a stop-work order for the Revolution Wind project off the coast of Connecticut and Rhode Island, which is 50%-owned by Orsted. The firm confirmed its planned rights issue.
Why it matters: The project is 80% complete and scheduled to be commissioned in 2026. We expect the order to be lifted, as was the case for Equinor’s Empire Wind project off the coast of New York last May. Otherwise, the financial consequences would be materially negative.
- Under this worst-case scenario, it’s likely Sunrise Wind would also be ordered to stop. This would result in a 13% reduction in our long-term net income estimates and 9% drop or DKK 26 in our fair value estimate.
- The impact of the former on the latter would be mitigated by the investment reduction. Likewise, we don’t think the group would need to raise more than the DKK 60 billion of equity announced on Aug. 11, but it would likely have to offer a larger discount.
The bottom line: Should the two projects be ditched and Orsted has to offer a 60% discount (versus 45% we now assume) to the share price of Aug. 8 in its upcoming rights issue, we would reduce our fair value estimate by DKK 70 to DKK 213.
Still, we view the likelihood of such a scenario as below 25% so we confirm our DKK 283 fair value estimate.
- That said, this bear-case scenario entails an increase in our Morningstar Uncertainty Rating from Medium to High.
- We also downgrade our Morningstar Capital Allocation Rating to Poor on the ill-timed rights issue and multiple projects’ setbacks.
Big picture: On May 19, the BOEM lifted the stop-work order it issued against Empire Wind on April 16. US Interior Secretary Doug Burgum justified this volte-face by pointing to New York Gov. Kathy Hochul’s openness to additional gas pipeline capacity.
- The Empire Wind case suggests President Donald Trump’s administration uses stop-work orders to exert pressure on East Coast Democratic governors regarding specific issues.
Another possibility is that the stop-work order is related to the spat between the US and Denmark over Greenland.
