Infigen Energy is a small cap stock which reported a strong 2018-19 result.
Infigen management has done a good job of diversifying its business, while locking in more of its earnings stream to soften the impact from declining Large-scale Generation Certificate (LGC) spot prices.
It reported revenue growth of 9 per cent and net profit growth of 8 per cent, driven by 12 per cent production growth.Importantly, Infigen has 75 per cent of production contracted under Purchase Power Agreements (PPAs) and commercial and industrial contracts for 2019-20, reducing exposure to merchant revenues which it has relied upon in the past. This provides a much greater level of certainty over cash flows and guards against a sustained decline in spot energy prices in key markets.
Cashflow performance was also strong in 2018-19 with operating cash flow up 44 per cent and 110 per cent cash conversion.With a much-improved balance sheet, this enabled Infigen to begin paying a dividend, while continuing to invest growth capex of $154 million into acquisitions and new projects.
We expect a similar scenario in 2019-20 as Infigen continues to generate significant cash flow, with capex likely to fall in 2019-20 (pending any further significant acquisitions).
We continue to believe there is comfortable upside at the current share price given that Infigen trades on multiples well below peers and is now offering a modest dividend yield (3.3 per cent).
David Macri is the chief investment officer of Australian Ethical Investment. _______
It looks like IFN will open strongly. This is one of the rare occasions one can honestly say;
Have a nice day!
Ash
IFN Price at posting:
66.0¢ Sentiment: Buy Disclosure: Held
