Opg Power Ventures Share Discussion Threads

[the original goldbug] 25/10/2023 20:57

Well the dream is still alive as they make mention of buying mothballed plants from the banks. My understanding is that the banks are not keen to sell at current prices (10-15% of book value) as everyone knows the power sector will do well over the next few years.

So they can either possibly pay a sensible price and go for growth. Shrink their equity or merge with a larger entity which is listed in India.

Besides their poor judgement or misfortune they are victims of the ESG hysteria in London.

For example I was watching Bloomberg news the other day and the TV anchor asked the fund manager whether he felt guilty investing in European oil majors…

[tim000] 25/10/2023 20:39

You’re obviously well informed, but whether or not Gujarat was their fault, they have a history of making poor investment decisions. If they have a neurosis, it’s understandable. The Gupta dream of creating an empire in the power sector (reading their early ambitions after the IPO) looks to be dead now, and they’ve lost the confidence of institutional investors.

[the original goldbug] 25/10/2023 20:30

Depends whether they are cheaper than their equity!

These businesses should be able to support quite a lot of debt in my view. So I think they have developed a neurosis after Gujarat. I don’t think the disaster at Gujarat was their fault either.

[tim000] 25/10/2023 20:25

The decision to deleverage was a very good one, as was their management of covid followed by the Ukraine war, eg their coal trading profits and management of PLF were impressive imho. Also their current monetisation of the receivables book. Their expansion strategy (Gujarat and solar) has been awful and in my view explains the current lack of investor confidence. Returning surplus capital to shareholders makes a lot more sense than speculative investments, though I think Goldbug you are a fan of acquiring mothballed power plants cheaply?

[the original goldbug] 25/10/2023 20:12

They could buyback their entire equity with 18 months of projected forward cash flow at the current share price.

It will be interesting to see whether they do anything. It must be embarrassing for them to see the equity trade at these prices. Contrary to what some of you think I think they are responsible to some extent for this deep malaise and are certainly in the position to do something about it.

[tim000] 25/10/2023 20:09

I understand your frustration, Dave, but in the current world, cash is king and debt is death - save for day trading of course. I’m continually rebalancing my portfolio into stocks with high cash generation and little or no debt. OPG is perfect as it’s exposed to one of the most rapidly growing sectors in the world - Indian power demand.

[tim000] 25/10/2023 19:55

At the current share price, I agree with you that a buyback would improve shareholder value. In many cases though, management are far too biased about their own abilities and overpay for the equity they manage. In general, it’s not the job of management to pretend they’re fund managers - especially when buying their own shares. Shareholder communications often suffer the same problem - excessive optimism.
I should add however that I wouldn’t expect a buyback policy to harvest a meaningful proportion of the equity at around the current share price, but there’s no harm in trying I suppose.

[the original goldbug] 25/10/2023 19:40

Please do attend the meeting and make your point. It will be a worthwhile experience I’m sure.

[the original goldbug] 25/10/2023 19:39

They should do a buyback. Buying their own equity at an 80% discount to book is a no brainer.

You can’t compare this to major companies who do buy backs where their shares trade on giddy multiples.

[tim000] 25/10/2023 19:13

I agree with you. Occasionally buybacks can support the share price, but they’re overused, often reducing shareholder value. Shareholder communications likewise. As part owners of the business, we should be entitled to question management. Unfortunately, OPG are bad at this, but I can live with that. I might attend the AGM this year to make this point face to face.

[jeffian] 25/10/2023 18:57

By the way, I was being a bit tongue-in-cheek in #942 in reaction to all the other "highs" in your post, but I absolutely agree with your #943 and is an argument I've often promoted myself. The levers available to Boards and Managements are revenues, costs, margins, profits and dividends and they should focus on those. Get those right, and the share price will follow in due course.

[tim000] 25/10/2023 18:22

The maiden dividend paid in Feb 2017 was cash (with a scrip option), but you’re right, the rest were scrip dividends.

[jeffian] 25/10/2023 16:59

Not that they ever actually paid out a dividend. Share issues, wasn't it?

[tim000] 25/10/2023 16:55

Of course. But the company can only control its business, not the share price. No doubt a higher share price will arise eventually. The company has rightly prioritized reducing indebtedness in recent years, and has dramatically achieved that. The share price completely ignored that progress. Perhaps reinstatement of the dividend this year might improve sentiment.

[jeffian] 25/10/2023 16:37

High share price would be nice!

[tim000] 25/10/2023 14:24

Of my latest post? High plant load factors, high profit margins, high cashflow, high dividends. For the long term.

[ali47fish] 25/10/2023 13:26

tim what the consequence on opg

[tim000] 25/10/2023 10:22

Interesting article in The Economic Times about India’s demand for electricity to power air conditioning. That currently accounts for 10% of total electricity consumption, but demand volumes are forecast to increase nine-fold (!) by 2050. Growth of the economy obviously will further add to the growth of electricity demand. It’s hard to see power generation capacity keeping up with such rapid demand growth, meaning electricity prices will outpace general inflation.

[tim000] 07/10/2023 11:44

The trading update mentions that electricity consumption in India has increased by nearly 9% in the current FY. In fact, adding the subsequently published figures for September, coal-fired power output has increased 14% April-September on the same months of the previous year. For five months of the second half of the FY, OPG has signed a contract to supply a State utility up to two-thirds of its daily capacity - subject of course to the State utility’s demand and OPG’s uncontracted spare capacity. In practice, therefore, I imagine the actual take-up will be substantially less. However, the company’s estimated output of 58% of capacity in FY24 does look conservative given these facts, especially as the Indian power market is very tight - reflected in the various government mandates for gencos to maximise output. I would hope OPG will beat this figure, exceed market expectations for cashflow and give the share price further momentum over the next 12 months.

[tim000] 06/10/2023 12:30

At the end of March the company had trade receivables about £27mn higher than normal, which equals the improvement in net debt reported from 31/3 to 31/8. But the strongly recovering PLF in the current FY will have further increased receivables. So it looks like the monetisation of underlying EBITDA during FY 2024 will further increase net cash in the rest of the year, though probably not to the same extent as in the first five months of the year. The monetisation of receivables to date has been very impressive.

[tim000] 03/10/2023 13:34

The Coal Ministry has published its September statistics compendium today. Of note, coal dispatches to the power utilities sector were up 14.2% in the 12 months to September, while power generation by coal-fired utilities was up 22.3% units over the same period (suggesting OPG maintained a high PLF in the month).

[tim000] 03/10/2023 08:47

The Indian rupee continues to strengthen against £, so profits convert into more £ and the rupee book value of net assets converts into more £ as well, resulting in an exchange rate gain in the P/L account. I expect this trend to continue long term as growth in the Indian economy far exceeds that in the UK.

[tim000] 02/10/2023 09:29

You could well be correct. The company is bound to give a cautious deadline to ensure it can deliver the results as announced. Any new info in the trading outlook will be the most interesting part of the results, now that we know the turnaround in net debt.