Henrik Poulsen is proving that greed and green credentials can mix well. The chief executive of DONG Energy has transformed the Danish utility into one of the world’s biggest renewable energy companies and charged up profits and shareholder returns.
DONG said on Thursday its earnings quadrupled in the second quarter, to 4.99 billion Danish crowns ($786 million) more than double consensus forecasts. That came three days after Poulsen raised EBITDA guidance for the full year by around 13%. He also indicated that the Danish company might within a year or two have enough excess cash to raise dividends or buy back shares.
Stake sale
The more optimistic 2017 outlook is partly explained by the sale of a 50% stake in a new German offshore wind farm to an external investor. The deal was originally expected to be sealed next year but the 1.2 billion euros that DONG will receive between 2017 and 2019 will start flattering earnings from this year.
But this is no flash in the pan. DONG has become the world’s largest offshore wind-farm operator, will convert all its coal-fired power plants into carbon-neutral ones by 2023, and has got rid of its oil and gas exploration assets. The focus on green energy means the Danish company is operating in a growing market with a stable and low-risk business model.
Wind farms may be expensive to build but have low operating costs since they run without fuel. Long-term contracts mean that future earnings are predictable. And DONG is becoming less and less dependent on government subsidies. The company is committed to building wind farms in German waters until 2024 without taxpayer support.
Growth companies which offer healthy returns at relatively low risk typically command higher prices. But this is only partly true of DONG. True, its shares have risen nearly 15% so far this year, three times as much as the STOXX Europe 600 Index. But the Danish company is still trading at less than 14 times expected earnings for the next year, compared with multiples of between roughly 15 and 16 for German peers such as E.ON and Innogy, Thomson Reuters data shows. That discount deserves to be closed.
( The author of this article, Olaf Storbeck, is a Reuters Breakingviews columnist. The opinions expressed are his own )
