Financial Times 04Feb2020

Tuesday4 February 2020 ★ FINANCIAL TIMES 15

COMPANIES

DAV I D S H E P PA R D —E N E R GY E D I TO R

Henrik Poulsen ayss Orsted as oneh
long-term goal: to become the world’s
first“green energy supermajor”.
It is a bold statement from the head of
thelargest offshore wind developer, but
Mr Poulsen insists that replicating the
global success of oil and gas companies
such asExxonMobil nda BP —but for
wind and solar — is crucial if the energy
transition away from fossil fuels is to
have a chance of success.
“It’s the right ambition for us to have.
We have to aspire to become one of
the long-term green energy superma-
jors over the next decade,” Mr Poulsen
said.
Five years ago this might have
sounded like misguided bravado. In
terms of output the Danish company’s
onshore and offshore wind turbines
generate just a fraction of the energy rel-
ative to the largest oil and gas majors.
Many analysts and investors are deeply
sceptical renewables can ever be as prof-
itable as oil or gas.
But Orsted, which is also the biggest
operator of wind power in the UK, has
tapped into a powerful trend.
With climate change rising up the
political agenda and funds increasingly
seekingless polluting options for their
investors, the company responsible for
building a third of all offshore wind

power globally has become an obvious
horse to back.
In the past 12 months its shares have
soared 70 per cent to value the company
at $46bn, or almost 40 per cent of BP’s
market capitalisation. Earnings before
interest, tax, depreciation and amorti-
sation rose 17 per cent for the year,
exceeding its own expectations.
Last year it won contracts in the US
and Taiwan, breaking out of its tradi-
tional North Sea heartland as more
countries gain confidence in wind’s abil-
ity to compete with natural gas on cost.
It plans to double its wind capacity in
the next five years to 20GW — enough to
meet more than half of all the UK’s aver-
age electricity demand — while most oil
companies plan only incremental
increases to their production over the
same period.
“There is some way for them to go to
scale up to the size of the energy
majors,” said Ben McEwen at Sarasin &
Co, a UK asset manager that bought into
Orsted in late 2018. “But we think its
share price performance is reflective of
this increased recognition from the
market that the energy system is about
to significantly change over the coming
decades.”
However, not all investors are con-
vinced. A quarter of the 16 analysts who
cover Orsted have “sell” or “under-
weight” ratings on the stock, versus six
“buy” or “overweight” ratings.
One UK investor in the renewables
sector said that while he admired what
the company had achieved, he was not

convinced its shares could go much fur-

ther. “There is nothing wrong with the

company, but it is a question of valua-

tion,” the investor said.

Mark Freshney at Credit Suisse, who

has an “underperform” rating on

Orsted, warned the rush into so-called

ESG funds — focused on companies with

strong environmental, social and gov-

ernance track records — over the past

year may have inflated its share price.

Morgan Stanley says Orsted is one of the

top companies held by European sus-

tainability funds.

There is also a question mark over

whether its turbocharged growth plans

are feasible if they are reliant on regions

outside Europe, where there is less cer-

tainty over the regulatory environment

for renewable projects. Investors could

be buying into a dream of growth rather

than one based on existing revenues.

“It is not trading like a traditional util-

ity,” said Mr Freshney. “You don’t nor-

mally pay far in advance on the back of

assumptions on future growth that may

not pan out.”

Mr Poulsen, 52, insists that both polit-

ical and investor sentiment had under-

gone a profound shift in just the past 18

months, with the public demanding

more decisive action to combat carbon

emissions and climate change.

For Orsted, the threat of competition

is also rising as its shift from fossil fuels

is eyed by other energy companies look-

ing to boost their renewables portfolios.

Royal Dutch Shell nda Equinor re botha

trying to expand their renewables busi-

nesses, which include offshore wind.

Investors looking for other large pub-

licly listed “green” energy companies

also have other options. Shares inVes-

tas, another Danish company that man-

ufacturers and installs wind turbines,

have risen by a third in the past

12 months to value the company at

almost $20bn.Iberdrola, the Spanish

utility that ownsScottish Power, has ral-

lied more than 50 per cent over the

same period to value the company at

$70bn, with about two-thirds of its gen-

erating capacity now emissions-free.

Mr Poulsen said he would welcome

the competition, particularly from the

traditional energy majors, if they were

to make a more aggressive push into the

sector as investor pressure increases.

“We have gone through an acceler-

ated transformation,” Mr Poulsen said.

“We have first-mover advantage. But for

the sake of the planet and future genera-

tions we need all of the capital we can

mobilise behind green energy.”

Even though Orsted is publicly listed,

it is still 51 per cent owned by the Danish

government, having evolved from the

company first set up to exploit Den-

mark’s oil and gas resources in the

North Sea in the 1970s.

When it listed in 2016, still as Dong

Energy, it was valued at less than a sixth

of BP’s then market value, before it

rebranded and became the first fossil

fuel producer to largely jettison its tradi-

tional business in favour of betting

renewables would become a corner-

stone of the 21st century energy mix.

In a sign investors are willing to bet on

the company’s growth, its forward

price/earnings ratio has soared to

almost 40 in the past year. ExxonMobil,

which has been one of thestaunchest

defenders of the industry’s need to keep

investing in new oil and gas supplies

long into the future, has seen its own for-

ward price/earnings ratio fall to less

than 20, according to Bloomberg data.

For some, the explosive rise in

Orsted’s valuation is far from a red flag.

John Musk, at RBC Capital Markets, said

the company did have the potential to

become “a very, very big business in a

relatively short period of time” as they

“stand alone in the marketplace” as a

pure-play green energy company with a

specialism in wind.

“People aren’t buying Orsted based on

what they did in 2020 but for what the

long-term growth might be,” Mr Musk

said. “When they listed, offshore wind

was in its infancy, and outside Europe it

wasn’t really on the agenda at all. That’s

changed dramatically in just the last two

years.”

Asian economies including Japan,

South Korea and Vietnam are examin-

ing potential projects. For now Mr

Poulsen remains confident his ambition

will soon be within reach, saying Orsted

is increasingly a “global operation”.

“Going green no longer comes with an

economic penalty,” he said. “In fact it’s

quite the contrary.”

Additional reporting by Attracta Mooney in

London

Orsted rises to global green energy challenge

Investors bet on growth at Danish group driven by shift from fossil fuels and growing concern about climate change

‘People aren’t buying

Orsted based on what they

did in 2020 but for what

long-term growth might be’

Sources: Bloomberg; S&P Capital IQ; financial reports; Orsted; BP Statistical Review of World Energy 

Primary energy demand

Global consumption (bn tonnes of oil equivalent)









     

Coal

Renewables

Hydro

Nuclear

Natural gas

Oil

The rise of Orsted

-month forward PE (x)





   

Orsted

ExxonMobil

Chevron

BP

Shell

Tota l

Net income (bn)

-

-



       

Orsted (formerly

Dong Energy) went

public in Jun 

‘For the sake of the planet

we need all of the capital

we can mobilise behind

green energy’

Step change: a

technician

makes his way

up an Orsted

turbine in the

Irish Sea. The

Danish group

plans to double

its wind capacity

in the next five

years

C A M I L L A H O D G S O N

Weak carbon emissions targets mean
less than a fifth of the world’s largest
listed industrial companies are on
track to help limit global warming to
2C, according to new research from a
group of investors with more than
$18tnofassetsundermanagement.

Only 14 out of 72 companies from the
paper, cement, steel and aluminium
sectors have emissions reduction plans
that align with the 2C target set out in
the Paris climate agreement,according
to areport from the Transition Pathway
Initiative. The group, which evaluates
how prepared companies are for the
transition to a low-carbon economy and
efforts to combat climate change, is
backed by asset managers including
Aberdeen Standard Investments nda
Legal & General.
The report assessed companies
includingArcelorMittal,Alcoa nda Rio
Tinto. It concluded that the heavy
industry and paper sectors were not
doing enough to curb their carbon foot-
prints. Industry ccounts for about aa
fifth of global greenhouse emissions.
While almost all the companies ana-
lysed recognised climate change as a
business risk, only two-thirds had emis-
sions targets in place, the report found.

Those includedKobe Steel,DowDuPont

and China ational Building Material.N

The study, which was carried out by

researchers at the London School of

Economics, found that the aluminium

sector was among the worst in terms of

carbon emissions. The sector does “only

slightly better than oil and gas produc-

ers, and airlines”, said TPI. “There has

been no improvement in the carbon

performance of the aluminium or steel

sectors, and industry as a whole is mov-

ing too slowly,” the group added.

The researchers also found that no

cement company “ensures consistency”

between its climate change policy and

the positions taken by the trade associa-

tions of which it is a member.

“Industrial sectors like steel and

cement face tough challenges to decou-

ple emissions from production but,

make no mistake, these industries must

transform themselves if they are to sur-

vive the low-carbon transition,” said

Faith Ward, co-chair of the TPI.

Some progress had been made.

According to the report, 29 per cent of

the companies analysed had plans in

place that would align their emissions

with the Paris agreement by 2030, up

from 24 per cent in 2018. Much of the

improvement comes from companies

listed in China and Russia, it said.

Industrials

Less than fifth of listed groups

on track to hit emissions goals

T I M B R A D S H AW— G LO BA L T E C H N O LO GY

C O R R E S P O N D E N T

Kitopi, a Middle Eastern start-up that

provides staff and technology to so-

calledcloud kitchens, has raised $60m

in new funding as investors look for

new ways to tap the fast-growing but

capital-intensive market for online

fooddelivery.

Kitopi was founded in Dubai in 2018 and

now operates 30 cloud kitchens across

the US, UK and Middle East. Its urban

sites exclusively prepare meals for cus-

tomers usingdelivery apps uch ass

DoorDash,Uber Eats nda Deliveroo.

Its latest financing was led byLumia

Capital, which previously invested in

Careem, theride-hailing group bought

by Uber for $3bn, andKnollwood. Tech

companies raising similar sums would

typically be valued in the hundreds of

millions of dollars, but Kitopi declined

to provide a specific valuation.

Venture capitalists have poured bil-

lions of dollars into privately heldfood

delivery apps, driving up the compa-

nies’ valuations even as many remain

heavilylossmaking. A new breed of

start-ups such as Kitopi are hoping to

provide the “picks and shovels” of the

food-delivery gold rush by working with

several online ordering services —

meaning their investors do not have to

pick thewinning delivery app n anyi

given market.

“The food delivery ecosystem is head-

ing in a very negative direction in terms

of profitability of all stakeholders

involved,” saidMohamad Ballout,

Kitopi’s co-founder and chief executive.

“We see a model like Kitopi can make

the ecosystem profitable.”

Many existing restaurants arestrug-

gling o manage the growing influx oft

couriers working for food apps while

also satisfying customers who want to

eat on the premises.

Cloud kitchens — sometimes known

as dark or ghost kitchens — have

emerged as a new way for restaurants to

solve this issue while also expanding

availability to new areas of a city.

Kitopi says it uses its own “smart

kitchen operating system” to optimise

the food preparation process so that the

food is ready just as the courier arrives

to pick it up.

Technology

Kitopi raises $60m to cater

for boom in food deliveries

K A N A I N AG A K I— TO K YO

Panasonic’s battery venture withTesla

has eked out a quarterly profit for the

first time, providing some relief for the

Japanesecompanythathassofarfailed

tomakeits$1.6bnbetontheUSelectric

carpioneerpay.

Hirokazu Umeda, Panasonic’s chief

financial officer, said losses at the bat-

tery plant it operates with Tesla in

Nevada had been staunched as higher

production volumes had cut the cost of

raw materials.

“By next year, we hope profits will sta-

bilise,” Mr Umeda saidyesterday.

The improving fortunes of the busi-

ness echoedstrong results ast weekl

from Tesla, which delivered its first

back-to-back net quarter profits as the

group prepares to step up production

for itsModel Y crossover utility vehicle.

The turnround comes at a crucial

moment for Panasonic after Chinese

battery maker CATL confirmedyester-

day it had signed a supplydeal with

Tesla. Panasonic became an exclusive

supplier of lithium-ion electric battery

cells for Tesla’s Model 3 car after invest-

ing in the $5bn “gigafactory” in the US.

Overall, Panasonic’s operating profit

rose 2.9 per cent to ¥100.4bn ($925m)

in the third quarter compared with the

same period a year earlier, as the

stronger performance from its joint

venture with Tesla helpedoffset a

decline in sales of factory automation

sensors and capacitors in China.

The gigafactory in Nevada has strug-

gled to raiseoutput since it launched in

2017, and relations soured between the

partners. Tesla chiefElon Musk as pre-h

viously blamed the Japanese company

for constraining Model 3 production.

Part of Panasonic’s frustration over

the factory has been the mismatch

between sales of Tesla vehicles and Mr

Musk’s aggressive plan to build new

plants in China and Germany, according

to peoplefamiliar with the matter.

Anotherissue for the joint venture had

been an industry-wide shortage ofbat-

tery engineers, which the company said

was resolved in December.

Panasonic was not involved in a new

battery plant for Tesla in China, with Mr

Umeda stressing his company would re-

main focused on demand at the Nevada

site for the Model 3 andY. He said Pana-

sonic was “not too concerned” about

losing exclusivity after Tesla signed

deals with South Korea’s LG Chem and

China’s CATL. Asked about the impact

of coronavirus,he said “we cannot yet

foresee the impact” ut tough condi-b

tions in China are expected to continue.

Automobiles

US venture with Tesla finally

starts to pay off for Panasonic

Kitopi co-founder

Mohamad Ballout

said the cloud

kitchen model

could make food

delivery profitable

FEBRUARY 4 2020 Section:Companies Time: 3/2/2020- 19:22 User:sanjay.gohil Page Name:CONEWS2, Part,Page,Edition:LON, 15, 1