Thanks Andrix. In my analysis I used three forms of valuation:
- EV/EBITDA multiples with sensitivity analysis that I think best represents earnings power;
- MWh multiples on recent transactions that I think provides estimates of takeover prices;
- Bond proxies for Kidston pumped hydro only (not all Genex) because I feel it has similar characteristics and provides mark-to-market valuations.
- I have not done a DCF as this is an asset-based investment, though I understand why some folks would do that instead of bond comparisons.
I am open to other suggestions about valuation approaches for Genex and Kidston Pumped Hydro. To my mind, KPH is not the same as the solar or batteries where Genex keeps some of the risk and upside/downside.
KPH has a $610m debt with around $185m of capital financing; the debt is secured for 15 years at 2.84% (though any acquiree could refinance that if they can find cheaper options - doubtful); this equates to a cost of $17.32m per year on the debt. Meanwhile, they get $50m per annum revenue from Energy Australia for 30 years which is inflation protected (CPI). At the end, there is a terminal payout of $250m if EA wants to own the KPH. If one wants to value those stream of incomes, then the Net Present Value estimate is ~$850m using the same base rates of the 2050 Treasury Indexed Bond plus some form of equity risk premium to discount it. Not really sure how else one could calculate it. As @Cungi noted, there's more detail in the twitter thread.
As I keep repeating, the best outcome for shareholders is that management doesn't try to aggressively develop it's pipeline - or specifically, it develops potential projects and gets planning approvals, but nothing that requires cash until KPH is up and running.
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