newsthe age: a big laugh at the valuations.
Pacific Hydro opens books to predators February 8, 2005 - 5:29PM
Australia's environmentally friendly energy generator Pacific Hydro has opened its books to a number of potential takeover predators, with interested parties believed to include global energy groups BP and Royal Dutch Shell.
Pacific Hydro, which operates hydro and wind energy farms in Australia and overseas, said it had selected a number of parties to carry out due diligence on its operations.
The company said it had received strong interest from local and overseas companies after calling for indicative proposals in October last year.
The review followed speculation its second largest shareholder, American Electric Power (AEP), was looking to offload its 16 per cent stake in the group.
"A number of credible and strong international parties have been selected to undertake due diligence on Pacific Hydro," managing director Jeff Harding told an analysts briefing on Tuesday.
Mr Harding said the proposals included a number of alternatives but investors, sensing a potential takeover, have sent the stock climbing more than 60 per cent since August last year.
Advertisement AdvertisementThe shares closed down two cents at $4.63.
Intersuisse energy analyst Peter Arden said that with Pacific Hydro shares currently valued on existing earnings, boosted by potential growth and the future value of carbon credits, interested parties would need a long term view on their investment.
Infrastructure funds and investment banks were likely predators as were global energy groups such as BP and Royal Dutch/Shell, Mr Arden said.
"Acquirers are going to have to pay for future earnings and that's something that acquirers don't like to do," he said.
"I think the interest will be from overseas, and with an eye on the carbon credits."
Mr Harding said Pacific Hydro's 2004/05 net profit was expected to exceed the $40.7 million reported in 2003/04 after a slight rise in first half earnings and the inclusion of the group's first sale of carbon credits.
The carbon credit market is still in its early stages but Mr Harding told the briefing the impact on future earnings was "potentially enormous".
Carbon credits are currently selling at between seven and nine euros a tonne. A figure that is expected to increase as the market grows.
Pacific Hydro has the ability to develop about 2.5 million tonnes of carbon credits from its existing international projects and the same amount from its Australian assets.
The Australian credits have limited value and are unable to traded offshore until Australia signs up to the European or Kyoto carbon credit markets.
"There is latent potential for significant value to be wrung out from this part of the business ," Mr Arden said.
However, he said any investment in Pacific Hydro would be long term with shares unlikely to be fully valued until the end of the decade.
"That's the sort of time frame they will need to roll out their wind farm and hydro aspirations," he said.
Pacific Hydro reported a net profit of $21.29 million for the six months to December 31, 2004, five per cent higher than the previous corresponding period.
