Opg Power Ventures Share Discussion Threads

[andycapp1] 09/8/2016 23:01

Gold, think the refinancing could be larger. Maybe up to £60-80m. Would they buy back equity? No chance, well no one would sell below intrinsic value so no real point. If the shares were ok, investing in solar at 14-15% levered IRRs would be interesting and say £60m of equity (geared 30/70) would buy you a log of MWs. But not very exciting. You buy on 14% something that's worth, say, 12%. Ho hum. I think deals might be interesting and Lanco could generate an interesting return in some shape or form as long as they don't take too much risk. Will they build a lot of new coal MWs? No don't think so. Too long to consent, too much time to get running etc. They've got their 750MWs. So infill stuff I hope. Few new solar MWs, Lanco? But all off a solid base.

[oldboffy1] 09/8/2016 19:49

At long last some really interesting posts. Please keep it up.

[the original goldbug] 09/8/2016 19:01

Interesting stuff..

andycapp, would you have some insight on the following:

Why did they buy the ships, what was the rational and how do prices paid stack up against new build and and second hand market?

If they were to refinance the earlier Chennai assets I assume cash released would be broadly equivalent to past debt amortisations. Again assuming that sum is in the region of £40-50m I can't believe they would use those funds to buy back stock in the market, which would only have the effect of making the company even more illiquid! When I met Gupta in 2012 he already mentioned plans to buy rights to build more large coal fired power stations. Clearly, as we have come to appreciate, things take longer than originally anticipated in India and nothing formal has ever been announced. Though I remain convinced that equity would be invested for growth not buy backs.

I met up with a friend who runs an India specific fund and although he is not aware of the OPG story, as he invests only in BSE listed stocks, made some very interesting observations:

Tamil Nadu is going great guns and is now the 6th largest car manufacturing hub in the world. The Maruti Suzuki JV are even exporting to Germany!

Gujarat is almost like another country in terms of governance, but it currently has a power surplus. Don't forget Modi comes from Gujarat.

The nature of state power contracts is changing rapidly. If the states don't pay for power, the producer is free to sell on the open market. This is a big change and should see an end to receivable related risks.

There is a harmonisation of sales tax across the country so finally productivity can be measured on a state by state basis.

I asked him for his largest blue chip stocks idea. He mentioned Reliance Industries. It has a GDR and interestingly for fans of charts is just breaking out of a 5 year base!! Reliance he argued, was wrongly priced as a petrochemical play, but he said their large investments in ecommerce and 4G should start paying off in the years ahead. As it pays a very small dividend all the cash flows have been reinvested in these business the last 5 years and these assets are apparently now beginning to monetise themselves.

[s25ava] 09/8/2016 18:18

So fair value for a growing company would 10p EPs x a multiple of 12 to 15. Any views chaps?

[rivaldo] 09/8/2016 16:07

Eddie, EPS is indeed based upon post-tax numbers. The 8p EPS and 7.68p EPS forecasts this year, and the 10.8p EPS and 9.3p EPS next year, are quoted directly from the broker notes.

I should have answered Azalea's question with the post-tax numbers instead of pre-tax.

Cenkos forecast £28m PAT this year and £32.6m PAT next year.

Cantor go for ££27m PAT this year and £37.99m PAT next year.

[andycapp1] 09/8/2016 15:03

Oh don't think he analysts are using 90%. The one I spoke to assumes 82%.

[andycapp1] 09/8/2016 15:02

Sorry on load factors I think new kit like this will operate at a bit higher than 75%. My experience of coal in the UK is more like 80-85% that assuming coal is available as is demand. 90% is certainly pushing it and I wouldn't believe it if they said they could sustain 90%. Not on coal. So I'd use 80% if you want to be conservative.

[andycapp1] 09/8/2016 14:40

Hiya. The tax is ultimately non cash and doesn't impact the dcf on the equity - at least not the way I work out a dcf!! The eps "hit" due to deferred tax was unfortunate at least in the way it was communicated and at the meeting it was a little muddled. The two brokers notes I have read do not have materially changed eps on the back of these results. On Lanco, no word but Gupta is cautious and the family has a significant portion of the equity. I really don't think he is going to do a deal that increases risk for the equity. Lanco is in the pooh and they and the banks need OPG more than OPG needs them. Therefore, I'd imagine that any deal must be beneficial to OPG and possibly materially so before it gets contemplated. On refinancing, I suspect they will do it as rates are favourable and it could release a ton of cash. Obviously the quid pro quo is that debt will increase but as I say the interest rate will be materially lower than the 11% odd it is at now. They might get some covenant benefits too. So again Gupta is cautious and I'm sure will only do it if it is clearly equity dcf enhancing. Last thing is I'm sure they get the message on share buy backs now. Think this has been a bit of a wake up call.

[source] 09/8/2016 13:11

...ps also Andy on the screens I have looked at the eps forecasts have actually dropped from 10 around Feb to 8p currently....Regards,Source.

[source] 09/8/2016 13:09

Thanks andycapp and all. Andy did you get an answer why the management assumption for future plf is only 75% going forward when only last year they hit 90% or so?That deterioration affects it's effective performance quite a bit and needs even more explanation than the deferred tax part in the eps level miss in my view. Also agree Andy, I too noted in my results summary that a refi was conspicuous in its absence. Maybe they are working on it still?And finally Andy did the management deny the crazy Lanco Infratech deal when you met them? (Hope so!)Regards,Source.

[eddie1980] 09/8/2016 12:55

Rivaldo - I think you will find the brokers quote profits at pre-tax level and EPS post tax.

You obviously care for EPS at post-tax as this is what is available to distribute/re-invest in the business.

[rivaldo] 09/8/2016 11:12

Azalea, Cantor's forecast is £35.02m PTP and 7.68p EPS.

Cenkos go for £35.1m PTP and 8p EPS.

[azalea] 09/8/2016 08:22

Is it too simplistic to interpret FY 2017 7.7 Eps x 351.42m shares, coming out at circa net profits of £28m?

[andycapp1] 09/8/2016 08:01

Met the management and am a substantial shareholder. Source you are right to the extent the deferred tax was unfortunate and not well explained. But the have delivered the power plants on time and broadly to budget; no mean feat. The outputs are broadly as expected at a cash level and so the NPV of the equity cashflows are broadly as billed, hence no downgrades to targets. Think they could have looked at buy backs instead of solar but I get the reasons why they didn't. That said I'd like them to consider it going forward, or at least benchmark acquisitions v buy backs. Debt looks ok and think there is room to refi a material portion releasing a lot of cash. As long as there is no material increase in risk then that looks sensible. So overall one can get lost in earnings misses, stockopedia, etc but overall they have delivered and the P&L and B/S look ok. Equity looks up to 100p odd.

[rivaldo] 08/8/2016 20:14

Source, both Cantor and Cenkos say results were broadly in line with consensus as regards both EPS and EBITDA.

Forget Stockopedia, ADVFN etc - they only show the headline reported figures and have no room for nuances. Unlike the various analysts who were happy with the results.

This would be one good reason why the shares are going up.

As well as the shares being cheap on fundamentals and prospects given that forecasts of 9.3p-10.8p EPS are only a few months away now, against a 71p or so share price.

[source] 08/8/2016 18:08

Thanks Rivaldo agreed at EBITDA level it seems to hide the misses, however on my Stockopedia it's definitely showing the miss at the eps levels.

Also it shows OPG's March 2017 eps forecasts have dropped from 10p from Feb 2016 down to what seems to be 8p currently. So certainly brokers are picking up deterioration in it prospects for whatever reason.

Another Good day for the stock though! Is this really 3 consecutive days of gains for OPG?! Must have broken some sort of record?!

Regards,
Source.

[rivaldo] 08/8/2016 15:27

To clarify matters regarding the results:

(a) Cenkos say Buy and calculate OPG made 7.1p historic adjusted EPS to 31/3/16. They note that results were broadly in line with forecasts at £50.7m EBITDA (which is actually above £50.4m Cenkos forecast).

There is a deferred tax charge resulting from the difference between Indian GAAP and IFRS depreciation treatment, but using the current year tax charge, adjusted EPS was 7.1p against 7p forecast.

They forecast 8p EPS this year and 9.3p EPS next year.

(b) Cantor retain their Buy and 130p target price and note that results were broadly in line with consensus for EBITDA, and were ahead of forecasts re net debt, though below their own EBITDA and PBT forecasts. They note the same tax timing difference factor.

Q1'17 revenues of £57m are well above their own annualised £212m forecasts if sustained.

They forecast 7.7p EPS this year and 10.8p EPS next year.

[azalea] 08/8/2016 14:27

There appears to be no let up in the net buying of shares. If this continues, we should see another notable leg up as MM are forced to raise the bid in the hope of attracting sellers to meet demand.

[azalea] 08/8/2016 11:54

kkd
With 12m more people entering the job market every year, adequate electricity supplies in India is crucial to maintaining employment levels and the continuing rise in GDP. Government plans to bring electricity to 18,000 villages for the first time by circa 2020, could in itself create a million new jobs. Coal will be the major source of fuel to drive generating plants for the next two decades, with the PM setting the energy minister a target of producing and delivering 1bn tons by 2019.
OPG has the most modern coal fired plants in India, designed to run on both indigenous and imported coal from Indonesia. The company's Eps will continue to rise this year and next without any further plants being built. Which makes brokers targets of 120-140p, quite achievable.

[king kong dong] 08/8/2016 11:28

I am here due to reading the results and outlook....all good!

Shares magazine had nothing to do with it....

[jjhbev] 08/8/2016 11:16

Hi Eddie

You posted as I typed! ;-)

I hope that you move into profit soon - I still need another 10p! I hope that I will recover that before Christmas but am prepared to take the hit if necessary. IMO this could go to £1 or equally could go absolutely nowhere. In any event, they are now out of excuses.

Best wishes for where you invest next.

[jjhbev] 08/8/2016 11:10

Ali47fish – PLF = Plant Load Factor. This is the percentage of actual output of a plant as compared with maximum nameplate capacity. OPG’s first 3 plants at Chennai have achieved well in excess of 90% but now the actual performance is considerably less. Guidance of a target around 75% was given in a Proactive interview by Mr Paliwal on 6th July. I and others have commented on what appears to be a very disappointing target level as compared with past performance. Even allowing for the change in sales mix (more fragmented end customers – but faster payment terms and less credit risk concentration) the target seems very low.

However, as posted by Rivaldo over on LSE the target figure may actually be in excess of 80% by March next year:-



"OPG Power set for maiden dividend payout

Investors that have kept the faith in OPG Power (OPG) will soon be rewarded, with management planning a maiden dividend worth 15 per cent of net earnings in respect of the financial year ending March 2017. That’s because the Indian power generator has finally hit its target 750 megawatts (MW) of operating capacity, a 480MW uplift on the previous year.

Around 70 per cent of this capacity was operational last year, which management expects to increase to around 80 to 85 per cent by March next year. A reduction in Indian and Indonesian coal prices also helped boost profits - factory gate prices fell 1.6 per cent for Indian coal and 20.7 per cent for Indonesian coal. What's more, the generator's revenue stream has become more stable, after management signed a series of captive sales agreements with around 200 industrial customers to supply power from its Chennai plant. These contracts last between two and three years.

Management says its priority now is "squeezing the lemon", in terms of current capacity and projects. Part of this is building up its 62MW investment in four solar projects in one of India's most industrialised states, Karnataka. Management hopes to build 300MW of solar capacity within the next three years.

Analysts at Cantor Fitzgerald expect pre-tax profits of £35m in the 12 months to March 2017, giving EPS of 7.7p.

I C VIEW:
The shares are trading on around 7 times forward earnings, having declined considerably in value during the past 12 months. This is hardly surprising given the negative sentiment towards emerging markets. However, with that forward earnings ratio low against its historic range, we're sticking to buy."

85% would be more understandable and obviously lead to significantly better financial performance. But again we have a total lack of clarity/certainty with what OPG is actually now targeting and this is not helping the share price notwithstanding the very very welcome rise since Thursday of last week (when perhaps “The Seller” finally sold out – very large sale of 983+k shares). I sincerely hope that performance, news flow and the share price improve (I need it to!) and as part of that I hope that the presentation of news improves dramatically!

Best wishes.

[eddie1980] 08/8/2016 11:10

PLFs are plant load factors - the % of actual usage over theoretical maximum. There are a couple of measures, both similar, bu can't recall the exact diffs.

Ballychan - yes, I am close to break even, couple more points, and yes, I will shortly sell out. Don't worry though, I will happily revisit to dampen any blind pumping/nonsense posted.

Main problem here - this run has been triggered by article in Shares mag - I would have hoped that the company is more competent than to rely on retail mags to generate sufficient buying interest.

Food for thought - saw similar articles published last year on OPG after Q1 and H1 results...

Note the themes - Q1 up 32%, H1 up 55%. Now what did they go on to achieve in full year EPS growth.... 5.13p from 4.8p - that's under 7%.





Growth in EPS will come, but I don't think its going to be anywhere near as explosive as one thought 12 months ago.

[king kong dong] 08/8/2016 11:04

Bottom line, is this is making money, can handle the debt and is on the up in a market with massive demands for power.

[ballychan] 08/8/2016 10:56

Eddie did you mention you bought in at 70p? Bet you can't wait to hit the sell button and forget this godforsaken company hey ;-)