The AGL bid is more than just the customer base. Even at the peak, Origin was paying just under $1500 per customer in their acquisitions - which would be ~$6bn for the ~4.2m customers of AGL. But with AGL's most recent acquisition of Click, the price was closer to $450 per customer, or ~$2.2bn valuation for AGL's customer base. One could argue that Click's customers are less sticky, so there may be a bit of a premium on that. Still, that's a fair whack short of the $9bn they were offering. So clearly they are buying poles, wires and generation too.
The reason I mentioned Brookfield specifically is however because of the capital structure, not that AGL and Genex are alike. AGL's cost of capital is higher than Brookfield Asset Management. BAM are paying only 3.53% - most recently they raised USD$500m for 30 years at this price, nice. AGL is around 5% for 5 years. And with the $3.5bn of debt that AGL carry, that's a $50m profit just for raising funds from BAM's balance sheet.
While the debt-finance for Genex is actually reasonably good, thank you very much to the Northern Australia Infrastructure Fund as well as ARENA and the Queensland Government's grants. However, their credit card has hit the limit. So now we're looking at equity-finance for Genex, which I argue is ~25% in the most recent raise.
So yes, I think BESS is great and the technology is fantastic and we should all be investing huge sums of money in this do-good high-return asset. But only if the cost of capital is sufficiently cheap. The IRR they estimate is 9-17%. If they are investing $60m and getting $14m revenue (best case scenario) with 80% gross margins ($14m*0.8=$11.2m gross profit) and paying 30% tax on that ($7.8m), that's 13% IRR prior to corporate and all other costs. Even in the best case scenario without including any of the fixed costs of running Genex, the IRR is about half the marginal cost of capital. That simply won't be the case in FY24 or 25. I hear about the need for a first mover advantage, but then they need to be looking at joint ventures where someone else puts up the risk and capital, and Genex is paid for its expertise and operations a smaller share.
GNX Price at posting:
14.5¢ Sentiment: Hold Disclosure: Held
