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Kitchen sinking can be a good way to draw a line under poor performance. It gets all the bad news out into the market, resets expectations and gives companies the chance to highlight progress. But that exercise only works if it really does spell the end of troublesome surprises. If they keep trickling out, stocks will be blown off course.
That helps explain Ørsted’s plight. The Danish wind energy developer’s shares fell 6 per cent on Thursday as a fresh batch of impairments overshadowed better-than-hoped-for operating performance.
The writedowns were mainly related to a delayed US project and the scrapping of its flagship e-fuels plant, which was intended to supply methanol made by combining hydrogen and carbon dioxide to industries such as shipping and aviation. It did not help that the writedowns were fairly small — at DKr3.2bn (€430mn) — and did not stem from problems in its core job of installing wind turbines: investors wiped more than three times that amount off the group’s market value.
The outsized reaction reflects the fact that Ørsted has only recently taken a long hard look at its portfolio and strategy, after a truly terrible 2023 in which it took DKr28.6bn of write-offs on cost increases and delays in its US projects. In its review in February it scrapped a number of ventures, earmarked others for divestment and cut capex and growth forecasts.
Investors will be wondering whether even the assumptions used in that exercise were cautious enough. At the very least, the emergence of new problems highlights that building big wind projects remains a complex and fraught proposition.
Ørsted’s jittery investors also want reassurance that the group can make progress on the DKr70bn-DKr80bn of divestments that it has promised by 2026 in lieu of raising fresh equity. Progress on this front is essential given it might end the year with DKr80bn of debt including hybrids and debtlike instruments, on UBS estimates. That compares with ebitda of DKr24.5bn at the midpoint of its range, and looks high for a company with chunky future capex requirements and a complex construction programme.
Ørsted may yet encounter fairer winds. In a lower rate environment, the value of its backloaded cash flows will be more valuable to investors. A more benign financing environment might also help it find enthusiastic buyers for the assets it has placed on the block. Operationally, too, it is showing signs of progress, with the installation of almost 2GW of capacity and higher-than-expected ebitda. And, of course, unlike in many other sectors, renewable developers have reasonable certainty over the long-term demand for their product.
But given the buffeting Ørsted’s investors have taken, they will want to see evidence of smoother sailing conditions before they climb aboard again.
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