In an Oct. 1 research note, Pareto Securities analyst Tom Erik
Kristiansen reported that Scatec ASA (SCATC:Oslo; STECF:OTCPK; 66T:FRA) will not reach its target of 5.9 gigawatts in operation or under construction by year-end 2021 because of permitting delays, inflation, and supply chain disruptions. Thus, Pareto recommends investors sell Scatec at the current price, NOK141.
"We continue to find the pricing of Scatec rich at a run rate price:earnings of 118 times, based on earnings thus far in 2021," Kristiansen added.
Kristiansen described the current problems and how they are affecting Scatec's project backlog. This company is a Norway-based solar, wind and hydro power plant developer, builder, owner and operator.
Regarding Kenhardt in South Africa, a project to encompass 540 megawatts (540 MW) plus 225 MW of storage, financing has been pushed out to the end of January 2022 and, thus, construction start, to mid to late Q1/22 from year-end 2021. Ultimate connection of the project to the grid will no longer take place around year-end 2022 but instead in H1/23. These delays are due to slower-than-usual permit approval.
As for two other of Scatec's projects, 65 MW Kherson in Ukraine and the 101 MW Sao Pedro and Paolo in Brazil, the company opted to cease further development of them. Scatec made this decision, Kristiansen noted, because "margins/returns fell short of hurdles" as a result of increasing costs and supply chain disruptions.
"This [project cancellation] will lower the backlog to 1,1915 MW and result in a NOK40–50 million impairment in Q3/21," Kristiansen noted. This scenario for Scatec could even worsen, impacting other projects in the backlog or pipeline, if the current challenges persist.
Further, Kristiansen wrote, "We expect the market to increasingly question the value of parts of the backlog (Mali has been there since 2016) and the ability to create excess value in an increasingly competitive market."
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Disclosures from Pareto Securities AS, Scatec ASA, Oct. 1, 2021
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