Now may be the perfect time to buy shares in green energy giant Ørsted, analysts at Swiss bank UBS said on Wednesday, with winds of change picking up even as the stock has tumbled more than 30% in 2021.
Pressure on the renewables sector since February, amid a dampening of market sentiment on clean energy and other growth stocks, has recently depressed shares in Ørsted
though the stock remains 20% higher over the last 12 months. Surprise repair costs in April also added weight onto the shares.
But now UBS
analysts have upgraded the stock to buy and given it a target price of 1,000 Danish krone ($163). With the shares trading around DKK890, that means the stock could have legs to climb 12% higher in the short term.
UBS joins RBC Capital Markets in smiling on the stock following the company’s capital markets day on June 2. The Canadian bank upgraded Ørsted to outperform on June 8 with a target price of DKK1,050.
The Swiss bank said the capital markets day was a positive event and “fundamentally bullish,” with management presenting ambitious 2030 targets for installed renewable capacity two-thirds higher than previously guided.
“Above all else, that management has high confidence in their ability to win projects going forward,” said analysts at UBS. “But it is also worth reflecting on the growing mismatch between climate targets and reality which means — in our view — that we can start to look past the individual auction events and broadly assume that Ørsted’s development pipeline will get built.”
The analysts also said there is potential for macro factors that have hurt the shares in recent months to unwind, especially as the COP26 Climate Conference approaches in November. UBS expects there to be renewed interest in clean energy stocks like Ørsted as COP26 gets closer — and Ørsted is already underperforming both the utility sector and its green energy peers this quarter.
“At current levels Ørsted offers a good opportunity to buy back into the long-term clean energy thematic, via a high quality company that now backs its strong outlook with detailed guidance,” the UBS analysts said.
Currently, Ørsted is one of the world’s largest developers of offshore wind power, with a commitment to be carbon neutral by 2025 and a green energy partnership with oil major BP
But its roots are as a state-owned oil company, founded in 1972 to manage Denmark’s offshore oil and natural gas assets. In 2017, Ørsted sold off its oil and gas business to chemicals company Ineos for more than $1 billion as part of a massive shift toward renewable energy.
Ørsted has warned that profit is expected to fall this year between 11% and 16%, in large part due to lower wind speeds, and pressure on the stock increased in April with a warning about surprise costs that materially affected quarterly profit.
Underwater rocks are threatening to cause critical cables to fail at 10 of the group’s offshore wind farms. The company’s early assessment of the full financial cost of the issue is around DKK3 billion from 2021 to 2023, with the bulk of the cash outflows in 2022 and 2023 — but the full picture isn’t clear.