An independent researcher with a sceptical view of the offshore wind market likes Eneti’s pending merger with Cadeler, but suggests holders then dump the stock.
The concern is less about Eneti as a company than it is about the uncertain state of the market for offshore wind power, write analysts at Hydra Research on the Seeking Alpha investment website.
The $1.2bn union would create the world’s biggest owner of wind turbine installation vessels (WTIVs) and the only one listed on the New York Stock Exchange, Eneti’s home base.
In the all-share deal, Oslo-listed, Danish-based Cadeler will offer investors in Eneti 3.409 Cadeler shares for every Eneti share. Cadeler will have 60% and Eneti 40% of the combined company.
“The offshore wind market is facing a cost crisis, with many operators cancelling projects, which will negatively impact NETI’s post-merger business,” Hydra writes, using the company’s ticker symbol.
“Concerns include the viability of planned projects due to rising costs, regulatory approval for the merger and Eneti’s significant [capital expenditure] liabilities. We think that a fair price is around $11 [per share], and thus investors should simply take the merger payout of around $10.80 and cash out.”
Robert Bugbee, who is president of Eneti and its backer the Scorpio Group, declined to comment on the analysis. But he said management will be happy to answer questions if and when a tender for the Eneti shares is cleared by US securities regulators.
Approval from the US Securities & Exchange Commission is one of the hurdles the business combination will need to overcome. It also faces an anti-trust review from regulators in Europe and the UK.
Emanuele Lauro-led Eneti is the former Scorpio Bulkers, which in 2021 decided to sell out of the dry bulk trade and transition to WTIVs. It then acquired Seajacks, an established UK owner and operator of WTIVs.
Eneti and BW Group-backed Cadeler announced their tie-up in June. Cadeler CEO Mikkel Gleerup has been emphatic in saying he expects the merger to close in the fourth quarter.
The Hydra analysts highlighted recent negative developments for offshore wind.
Costs associated with US projects have risen by 57% since 2021 because of inflation in components and labour costs, as well as rising interest rates, leading to cancelled or reworked deals.
Cancellations have erased billions of dollars in planned spending and imperilled at least 9.7 gigawatts of planned projects in the US.
The cost crisis has also affected projects in Europe and the UK. And Hydra questions whether cost pressures might revive nuclear power as a potential cheaper alternative, as has been rumoured in Germany.
The researchers said capital expenditure related to Eneti’s two WTIV newbuildings at Hanwha Ocean in South Korea is the “unspoken elephant in the room”.
While acknowledging Eneti’s solid liquidity position — $120m in cash versus $50m in debt — Hydra cited “unaccounted” liabilities of $500m to $550m over the next two years for the newbuildings.
“Compared to the $60m of [free cash flow] for full year 2022, this is not a good sign if matched with concerns over demand and rising costs,” the note said.
Eneti has not been without good news related to the Hanwha project. It recently announced it has fixed one of the two NG16000X WTIVs at nearly $350,000 per day, with mobilisation starting in early 2027.
Inclusive of mobilisation and demobilisation, the contract is expected to last for between 210 and 245 days and generate $87m to $100m of gross revenue.