IFN Valuation

Many thanks to Ashentegra for his post "Development assets valuation" regarding the sales process of Origin's undeveloped wind farm Stockyard Hill. I've always wondered how to go about valuing the undeveloped IFN assets.

This is my comprehensive valuation on IFN as a whole (operational + undeveloped assets).

Valuation 1:

Stockyard Hill has 149 turbines with a capacity of up to 536 megawatts.

"Some estimate the price for the development rights could be about $55 million but others say the asset could fetch twice that, depending on demand from prospective buyers, many of whom from China are known to be unpredictable when it comes to the prices paid for Australian assets and the conditional terms." (http://www.theaustralian.com.au/bus...a/news-story/9f42cee83195991ae274b177f5522971)

So let's assume $10 to $20 million per 100 megawatts of development capacity.

IFN has > 1200 megawatts of undeveloped wind projects and almost 200 megawatts of undeveloped solar projects.

So I'm guessing that this is worth between $140 and $280 million. Divide this by 772.5 million shares on issue = 18c - 36c per share.

Add this to the approximately $1.20 valuation on the operating assets alone (in line with PE comparables as previously discussed in other IFN threads) and this equates to a share valuation of $1.38 - $1.56 per share.

Valuation 2:

Back of the envelope check based on the Pacific Hydro acquisition in January 2016:

Pacific Hydro was bought acquired by a Chinese state owned company for a deal worth $3bn including the debt. At the time of the deal Pacific Hydro had 900 megawatts of generation capacity across 19 hydropower dams and wind farms in Australia, Chile and Brazil (http://www.smh.com.au/business/ener...t-snaps-up-pacific-hydro-20151216-glp7cg.html) as well as a 1,500 MW of undeveloped projects (http://www.pacifichydro.com.au/english/about/about-pacific-hydro-australia/).

As of 30 June IFN had $595m of net debt, 557 MW of operational assets and a significant pipeline of wind and solar projects. So back of the envelope based on the Pacific Hydro deal value =

557 MW / 900 MW * $3,000 million - $595 net debt = $1,262 net equity (market cap). Divide this by 772.5 miilion shares on issue = $1.63 per share.

It's important to note that LGC pricing (which affects IFN's earnings) has gone up significantly since the Pacific Hydro deal was closed.

Whichever way you cut it, IFN is significantly undervalued at current prices.