Valuation of Ørsted: Determining the Fair Price of Ørsted

Aleksander Thor Edemann & Rasmus Hvass Lang Pedersen

Student thesis: Master thesis


In 2006, Ørsted was among the most coal-intensive utilities in Europe, but today it is one of the most renewable. In line with this shift, Ørsted changed its name from DONG Energy, which was an abbreviation of Danish Oil & Natural Gas, to Ørsted. Ørsted’s goal is to phase out their use of coal by 2023, turning its focus to offshore wind. Because of this transformed business profile and increasing exposure to offshore wind, investors are now forced to rethink and re-evaluate their valuations of Ørsted. The objective of this thesis has been to determine the fair value of Ørsted A/S’ share price, as of March 31st, 2018. To ensure a robust valuation of Ørsted, this thesis has incorporated a set of well-documented strategical and financial frameworks. The PESTEL framework examined the macroeconomic drivers affecting the offshore wind industry. Porter’s Five Forces further investigated factors important to the competitive environment in the industry. Porter’s value chain defined the activities supporting the value chain of Ørsted. Meanwhile, the VRIN framework was applied throughout in order to examine Ørsted’s competitive advantages. To properly adjust the financial forecasting, a historical analysis of Ørsted’s financial performance relative to its peers was conducted. The main findings were summed up with the SWOT framework. A ‘triangular-valuation’ approach was applied; more specifically, DCF, a relative valuation with and without machine learning, comparable transactions and market regression. To ensure a robust valuation, the DCF was thoroughly stress-tested with Monte Carlo simulations. The strategic analysis highlighted macroeconomic factors as the key drivers of the offshore wind industry. The goal of reducing CO2 entails a shift from the conventional fossil fuels towards renewable energy sources. LCoE will determine whether offshore wind is able to compete with other renewable sources. In addition, subsidies and power prices have a major impact on the growth and profitability of the industry. However, Ørsted has a sustained competitive advantage with its know-how and technological capabilities—a product of being the first mover. The financial analysis revealed that, so far, offshore wind has been a major driver of Ørsted earning a ROIC over its WACC, creating value for its shareholders, helped by their farm-down model. However, former oil & gas companies have noticed the growth potential in offshore wind and have committed to taking market shares. The SWOT framework summarised more threats than opportunities, resulting in a negative outlook post-2025. The value per share is found to be DKK 329; consequently, the current share price of DKK 392 is OVERVALUED, initiating a SELL recommendation. According to the Monte Carlo simulations, there is an 85% probability of a loss if investors were to invest in the stock today. To forecast Ørsted’s first quarter earnings April 26th, the initial idea for a wind model has been built.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final ThesisMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2018
Number of pages163