Orrön Energy — Capitalising on renewable ambitions

Research: Industrials

Orrön Energy — Capitalising on renewable ambitions

Orrön Energy’s capital markets day reinforced its operational achievements and its strong growth pipeline. Since July 2022 Orrön has continued to deliver on its growth ambitions, by increasing its production capacity fourfold to 400MW. It also has a 40GW pipeline of organic greenfield development projects across five countries, positioning Orrön to capitalise from growing renewable targets and regulatory support. It has a strong balance sheet with €92m net debt at year-end 2023 and a revolving credit facility of €190m (€78m undrawn Q423). This is supported by forecasted long-term cash flows, with management guiding annual revenues of €35–75m and EBITDA of €10–50m at an achieved price of €30–70/MWh, having achieved an average price of €47/MWh in FY23.

Written by

Harry Kilby

Analyst

Industrials

Orrön Energy

Capitalising on renewable ambitions

Renewable energy

QuickView

22 March 2024

Price

SEK7.31

Market cap

SEK2.1bn

Share price graph

Share details

Code

ORRON

Listing

Stockholm

Shares in issue

286m

Business description

Orrön Energy is an independently listed renewable energy company within the entrepreneurial Lundin Group of companies. Orrön Energy transformed into a renewables company in July 2022 and has since grown through acquisitions, while increasing its annual estimated power generation from 300GWh to 1,100GWh (FY24e). Its core portfolio consists of wind and hydro assets in the Nordics. The company is seeking new opportunities to expand into Europe to increase its power generation capacity via greenfield projects in wind, solar and battery storage. Orrön Energy’s aim is to become a full cycle renewable company with a significant long-term growth pipeline.

Bull

Increasing demand for renewable energy offers prospect of high growth.

Strong regulatory support in growth pipeline.

Financial capacity to fund growth.

Bear

Revenues dependent on electricity prices, which fell throughout 2023.

Negative investor sentiment surrounding renewables, leading to trading at discount to NAV.

Loss making for FY23.

Analysts

Harry Kilby

+44 (0)20 3077 5724

Andrew Keen

+44 (0)20 3077 5700

Orrön Energy’s capital markets day reinforced its operational achievements and its strong growth pipeline. Since July 2022 Orrön has continued to deliver on its growth ambitions, by increasing its production capacity fourfold to 400MW. It also has a 40GW pipeline of organic greenfield development projects across five countries, positioning Orrön to capitalise from growing renewable targets and regulatory support. It has a strong balance sheet with €92m net debt at year-end 2023 and a revolving credit facility of €190m (€78m undrawn Q423). This is supported by forecasted long-term cash flows, with management guiding annual revenues of €35–75m and EBITDA of €10–50m at an achieved price of €30–70/MWh, having achieved an average price of €47/MWh in FY23.

2024 outlook: 40% growth in energy production

Management expects annual energy production for 2024 to increase by 40% y-o-y to 1,100GWh. Unit operating costs are forecast to fall by 20% to €15/MWh and capex is forecast to decrease by 80% to €14m, with this fully funded by cash flow (decrease due to completion of the Karskruv development project). EBITDA is forecast at €22m (at an achieved price of €50/MWh), up 175% from FY23. Key steps for growth throughout 2024 include securing additional land, maturing first projects to ready to permit stages and exploring monetisation of large-scale projects to recycle capital.

Strategically positioned pipeline for long-term growth

Orrön’s total combined installed solar capacity across the UK, Germany and France in 2023 was 119GW and the aim is to increase this fourfold by 2035 to 479GW. The company has strategically positioned its 40GW development pipeline, primarily consisting of large-scale solar and battery projects (36GW UK, 3.9GW Germany) to best capture this upside in stable jurisdictions with high renewable energy ambitions, ensuring it will receive strong regulatory support. As Orrön brings its pipeline online, it aims to add additional value to shareholders through the optimisation of its existing operational asset base via life extensions and technical upgrades to improve efficiency, and to increase production with reduced capex.

Valuation: High discount to NAV

According to management, at 9 February 2023, Orrön was trading at a 60% discount to NAV. This discount may not fully reflect its current operating portfolio, which has strong cash generation ability, long asset life durations (the Nordic wind portfolio has an estimated operational life of 30 years prior to extensions), the 40GW growth pipeline, organic growth and potential value accretion via acquisitions.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(c)

DPS
(c)

P/E*
(x)

Yield
(%)

12/22

13.8

0.8

0.1

0.0

21.2

N/A

12/23

28.0

(19.1)

(0.03)

0.0

N/A

N/A

12/24e

43.1

0.0

(0.02)

0.0

N/A

N/A

12/25e

41.6

5.4

(0.01)

0.0

N/A

N/A

Source: LSEG.

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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