Investing.com -- Shares of Ørsted AS (CSE:ORSTED) jumped over 5% following its 2024 full-year results and an update to its business plan.
The company’s EBITDA for 2024 reached DKK 24.751 billion, slightly exceeding the guidance of DKK 24.8 billion, while impairments matched expectations at DKK 12.1 billion.
Offshore wind operations performed well, generating DKK 23.8 billion in EBITDA, above consensus of DKK 23.3 billion, driven by strong output from new farms and favorable wind speeds. Onshore and biomass segments also met expectations.
Ørsted’s 2025 guidance was in line with market consensus, with EBITDA expected between DKK 25-28 billion and gross investments in the range of DKK 50-54 billion.
“On first sight, it appears that Orsted has passed on the opportunity for reset with equities and instead is looking to transform itself into an ex-growth company with a dividend. We struggle with the merits of such an equity story and see the shares as insufficiently cheap (although not expensive either) to take on the risks that Orsted still faces,” said analysts at Citi Research in a note.
However, Ørsted revised its 2024-2030 capital expenditure plan, which includes a 25% reduction, cutting its target to DKK 210-230 billion ($29-32 billion), a 10% drop from prior estimates.
This move is aimed at addressing challenges in the renewable energy market and easing financial pressures on Ørsted’s balance sheet.
While the capex cut helps in the short term, Ørsted remains committed to completing its 9GW under-construction projects, with most savings likely to be realized beyond 2025/26.
The company also revised its total capacity target to 27GW by 2030, a big cut from the previous goal of 18GW. Ørsted is focusing on two major U.S. offshore wind projects—Sunrise Wind and Revolution Wind—both under construction.
“Execution risks in the US have been a big overhang for Ørsted’s stock in the past and drawing a line under such issues would be key to the equity story, in our view,” said analysts at Jefferies in a note.
Additionally, Ørsted reiterated its divestment plan for FY24-26, targeting DKK 70-80 billion ($10-11 billion) in asset sales. Jefferies analysts estimate that around 70% of this target remains outstanding.
The divestment strategy is key for Ørsted to meet its Free Cash Flow (FFO) to Net Debt target of over 30%, which is vital for maintaining its investment-grade credit rating. Importantly, Ørsted has stated that it does not plan to raise new equity to meet these goals.
Ørsted also updated its EBITDA guidance for 2026, lowering its target to DKK 29-33 billion, with the midpoint at DKK 31 billion ($4.3 billion), which is 3% higher than consensus and 15% lower than its previous plan.
The company has reduced its return on capital employed (ROCE) target for the 2024-2030 period to 13%, down from the prior target of 14%.
In addition, Ørsted confirmed it would reinstate dividends from 2026, a move expected to boost shareholder confidence.
Capital allocation criteria for new projects remain strict, with Ørsted focusing on those offering internal rates of return (IRR) 150-300 basis points above its weighted average cost of capital (WACC).
While the revised capex plan and growth targets reflect a more conservative approach, analysts view Ørsted’s strategy as a small positive, particularly due to the company’s focus on improving its financial stability through disposals and completion of key offshore wind projects.
Jefferies analysts estimate Ørsted’s assets in operation and under construction are worth DKK 300 per share, with an additional DKK 65 per share for its project pipeline.