1. Outputs 550MW renewable generation ~14% of Australia wind farm capacity. Holds development rights for another 1,100MW. Australia is legislated to build another 6,000MW by 2020. Simply it will be involved in 1 every 6 projects over next five years. There is latent opportunity to fit out solar on all sites (if development permits were obtained). Wind farm valuations are for ~25 years, but with the level of maintenance being applied, could be anticipated to be operated for much longer.
2. Approximately ~50% of its wind assets are sensitive to large scale certificate price (LGC). LGC price currently A$78.50, up +103% (averaged A$38.50 in FY15). Given leads / lags associated with building new wind farms and 'capital strike' over last two years, expected LGC price will remain high now until 2020. Aim for IFN is to lower sensitivity to LGC prices, with IFN looking to sign contracts for both existing and development portfolio (improving its earnings 'quality').
3. Due to legislation certainty, larger / overseas players are looking to invest in renewables in developed markets (countless examples, look at overseas companies: CLP Holdings, Engie, Iberdrola).
4. Assuming IFN market cap A$400m, A$550m debt (assume $50m reductionin FY16/FY17), and FY17 EBITDA A$140m (LGC price >A$80). IFN trades on a forward multiple of EV/EBITDA ~7x. Every 1x increase in multiple is roughly 18c per share. So what is IFN worth on a multiple basis? The last acquisition in Australia renewables was Pacific Hydro which sold for EV/EBITDA 17x, which would be equivalent to >A$2 (completely blue sky assumption). The most recent acquisition in utilities sector was Ethane Pipeline Income Fund (EPX) which sold for EV/EBITDA 11x, which would would be equivalent to >A$1.
5. And lastly, look to share price momentum, daily volume, registry, it is pretty tight - share price can move very quickly (just look at spikes in Dec / Jan).
IFN Price at posting:
52.5¢ Sentiment: Buy Disclosure: Held
