Shares in Denmark-listed green energy giant Ørsted plummeted 22% to their lowest point in over four years following a warning that the company may record a 16 billion Danish kroner ($2.3 billion) impairment on its U.S. operations. This news comes as central banks battle against inflation, resulting in higher borrowing costs and interest rates. If tax credits from "senior federal stakeholders" for Ørsted's offshore wind projects are not secured as hoped, it could lead to additional impairments of 6 billion Danish kroner.
Furthermore, Ørsted acknowledged potential problems with suppliers for three key projects in the U.S. - Ocean Wind 1, Sunrise Wind, and Revolution Wind - which could result in another 5 billion Danish kroner impairment.
Despite these challenges, Ørsted does not anticipate these charges to impact its EBITDA guidance for the year. David Hardy, Chief Executive of Orstead Americas, remains optimistic about the long-term attractiveness of the U.S. offshore wind market. He stated, "We will continue to work with our stakeholders to explore all options to improve our near-term projects."
However, analysts are expressing concerns as Ørsted shares have dropped by more than a fifth, falling below DKK450 - their lowest level since December 2018. Analysts at Bernstein have noted that today's announcement highlights risks in Ørsted's U.S. portfolio and does little to improve investor sentiment on the stock.
Meanwhile, in Europe, the equity session has also experienced a loss of momentum. German benchmark bund yields have risen due to reports of stubbornly high inflation in the eurozone's largest economy, which may prompt the bloc's central bank to raise interest rates again at its policy meeting on September 14.
Core Inflation Shows Resilience in Germany
Analysts at Citi have noted that core inflation in Germany has been more resilient than expected. The weighted average monthly increase in the consumer price index (CPI) across the six German states that have reported so far, accounting for 68% of CPI, is 0.36% month-on-month, slightly ahead of expectations.
Market Update
The DAX 40 in Frankfurt and the CAC 40 in Paris initially started the day on a positive note, following a sharp rally on Wall Street overnight. However, both indices were later trading down 0.3%. London's FTSE 100, on the other hand, managed to gain 0.4% thanks to higher oil prices, which provided support for energy groups.
Oil Prices Rise Amid Concerns
While concerns about slowing demand in China continue to put a ceiling on oil prices, supply concerns have caused prices to edge up. Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, commented on the situation, stating that Hurricane Idalia heading towards Florida poses a threat of disruption to output and power generation in the Gulf of Mexico. Additionally, U.S. crude stockpiles saw a larger-than-expected decline of 11.5 million barrels last week, compared to the anticipated fall of 2.9 million barrels.
Heineken Downgrade Impact
Shares in Heineken initially saw gains but later traded slightly lower at €90.3 after a downgrade by RBC. The brewer's rating was lowered from sector perform to underperform as RBC analyst James Edwardes Jones explained, "Heineken has over-estimated its premium brands' pricing power and under-appreciated the need for sustained revenue investment to nurture brand equity." Consequently, RBC forecasts Heineken's earnings before interest and tax (EBIT) margin to be 210 basis points below 2022 by 2025, resulting in estimated earnings per share (EPS) forecasts that are 26% below consensus. RBC has reduced the price target to €78 and downgraded the rating to underperform.
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