are we done and dusted?, page-3

I don't think it is Copenhagen. My view is that the share price has been depressed for a number of reasons, all of which are temporary if you take a medium term view and that VIR is likely to be taken over in the near term at a premium to the current depressed share price:

i) The company has created an expectation there may be a equity raising to reduce the corporate debt. Why buy shares today if you can buy them cheaper in a capital raising tomorrow. I personally think they will sell UK wind and get a debt facility against the US landfill and or close out the heding and or term out the corporate facility and will not need a capital raising. It would be great if they would annouce that they don't need to do an equity raising but until the corporate debt facility is dealt with (I expect in the next few months, the Board is keeping its options open, just in case they need to raise capital

ii) There has been a seller. I don't know how many shares they have to sell or why they are selling, but this has been restricting the share price

iii) There are no marginal buyers - why buy a tiny market cap company with a large amount of debt, and limited growth options - certainly no institution would, and will no dividend likely in the short term, there are not many retail buyers

iv) The A$ is strong against the GBP. This depresses reported earnings, although it also reduces the debt in A$ terms and the hedging is well in the money

v) UK power prices are under pressure because of their recession. A big proportion of VIR's contracts are fixed price/increases, but some of their power supply will need to be reset next year at lower rates. This year should be solid

vi) US landfill is not contributing much. Gas prices in the US are improving, albeit off a low base. Hopefully there will be a positive resolution in California - there is only upside

While the above factors are all valid taking a short term (6-12 month) view, in my opinion the long term value of VIR's assets is materially undervalued by the current share price

a) There is a shortage of renewable energy in the UK, and new projects like offshore wind are expensive. They will also be hard to finance given the GFC, and low power prices, notwithstanding regulatory support. VIR's long life renewable energy will become increasingly valuable as mandate levels increase (this is existing legislation, not dependent on Copenhagen or any thing else). Existing landfill credits are grandfathered at high levels.

b) VIR is a sitting duck and is likely to be acquired. Just have a look at the price Infinis (Terra Firma - Private equity) paid for Novera. Note Macquarie used to promote Novera and advised VIR on the sale of the German wind. They will be all over getting a bid for VIR. Note also that the Archer bid for ENE went unconditional today. There are significant synergies between Infinis's operations or ENE's operations and VIR. You could close offices in Australia, the UK and US, and either company could operate VIR's assets rather than the outsourcing arrangement currently in place. 3i (major PE firm) also had an interest in Novera and could also be a bidder for VIR

c) Management now has an incentive to get a deal done (incentive rights recently put in place). Let's be realistic - why would management actively try and get the company taken over if it meant losing their jobs? Now they get their incentive accelerated if there is a successful takeover offer. In my view they have made a number of mistakes over the past years, but human nature is what it is and the incentive arrangements are a positive

d) The hedging is materially in the money and could be closed out to reduce debt - I don't think this is recognised by many and I also think some may be confused by the accounting tax liability which my understanding is just that - accounting not a real liability

e) The UK is still depressed, however like most developed markets, it will recover, and power prices will recover. The smart time to buy is when prices are low, not high. Not many share traders or investors are smart

These thoughts are just my opinion
Monty