I'm giving you a +1 lightbulb @baldynumbers but I think I...

I'm giving you a +1 lightbulb @baldynumbers but I think I disagree

KPH is a fixed income, bringing in $50m p.a + CPI (fortunately it has inflation incorporated into the payments from Energy Aus). But, it's still a long duration asset, which is increasingly a bad spot to be in the market nowadays. The ~$800m cost basis gives a 6.25% real return from FY25 when it becomes operational. If interest rates continue to go up, it could be that (a) the NAIF funding and other debt financing becomes more expensive, and (b) the market drives the yield up in terms of what it's willing to pay. It essentially is a bond proxy at this point in time, and bonds aren't doing well.

If I lost you in that, put simply: The base case is the market is willing to take on risk for a 6.25% yield return. But, if interest rates go up by say 2%, and they want a return closer to 8%, the only way that can happen is if the shareprice of Genex falls by around 25-30%. To some degree, I think this has already started happening. The EV/EBITDA future multiples have shrunk from around 18x (25c per share) to 15x (14c per share).

And the second point that I note - something I will continue to harp on as an investor in Genex - is the marginal cost of capital is substantially higher than the average cost of capital. So for every new CAPEX initiative that management puts forward, they are increasingly diluting shareholders by more and more. We already know there is no more debt financing coming down the pipeline until operational cash flow improves. And the cost of equity financing is substantially more expensive for shareholders than debt financing - as it means more shares on issue and dilution events. Brookfield, AGL, Mike Cannon Brookes, or even my mum would be better off investing in Bouldercombe than Genex - as the cost of capital for them is substantially lower.

Tl;dr
Operational risk: Good
Capital risk: Bad