Opg Power Ventures Share Discussion Threads

[the original goldbug] 17/3/2017 14:49

I had an open and friendly discussion with Arvind Gupta and co this morning.

Firstly earnings will be roughly 6.5 p for current financial year and they will only grow slightly in the year ahead. Apparently the reason for the more bullish numbers floating around was non company brokers putting out aggressive buy recommendations without consulting management. I've been back in the stock since June or so of last year and didn't feel it was right to push them too hard on this issue.

So net earnings this year will be £27 and £30m next year. I was more interested to learn what earnings could be when everything is hunky dory at Gujarat. The load factors are at about 68% rising to 70% next year. Theoretically they could get to circa 90%. What is stopping this is permission to lay more transmission. They are being stifled by local government who also operate and own power producers in Gujarat and don't wish to see more power enter an already over supplied local market. This process can be stalled not stopped and they will likely have their transmission issues rectified within 18 months. They will then be looking to sell power into neighbouring states. With no cyclones and Gujarat at 80%+ net earnings could grow to nearer £40m given the operational leverage inherent in the business.

On some level it is amazing that they make any profit at all given 80% of power is supplied by local government who are subsidised by state government. In the private sector OPG enjoy higher margins and therefore higher returns than their competition, so they have to be given credit for that!

Longer term the subsidy regime might change. What will really be the kicker is if we get a bear market in coal prices.

The solar business works on long term offtakes and is a competitive tender process. I understood them to have tendered on 700MW and they have been successful on 200MW. Debt equity is 70/30. They maintain the equity IRR is 18% given borrowing rates at 11%. We shall see...! Load factors will be 20%. Some people are bidding for less, so it will be a tough business to grow with a guaranteed return profile. I felt they were doing to tip their toe and give green credentials to the business and in the scheme of things the equity investment is quite marginal. Solar will contribute earnings the year after next, that is to say March end 2019.

They clearly want to grow the business and they maintain they could further gear the current balance sheet to bring £150m to the table. Clearly lots of private operators are in all sorts of trouble. What they will not be doing is buying superficially large MW capacity which is locked to provide power to local government at unprofitable rates. They are not going to jeopardise their status as one of the few private sector operators who actually make a decent return on capital ~ 15%+.

[the original goldbug] 16/3/2017 23:06

Chalky

Respectfully I disagree with your thoughts. The interest payments actually rise, as free cash is not being used to pay down debt, thus negatively impacting upon the p&l. However it frees up cash allowing for new investments, which over time build earnings, provided the return on capital from new investments is greater than the interest rate they are paying on their debt.

[azalea] 16/3/2017 12:28

Polythene.
As you well know,you only lose money when you sell your shares for less than what you paid for them. Between Oct and Dec 2016 I sold a significant number of shares all at a profit; some were on a quick buy & sell basis, which I expect others to have done and are doing so of late. Others have simply sold and taken the loss. What I now hold are making a paper loss, but I will hold these until they return to profit. The numbers in Ballychan's post illustrate the potential.

Trading the shares are now getting to be risky as those who have sold more recently at a quick profit are finding having to pay notably more to get back in as the share price continues to rise.

[ballychan] 15/3/2017 17:14

I came across this Buy recommendation dated April 2013 - buy at 57.25p. It gave highlights of "Results for the six months ended 30th September 2012 highlighted a PBT of £2.51m with revenue of £17.8m."Now fast forward 3 years to half year Sep 2016 and PBT is £18m with revenue of £118m, so nearly a 10 fold increase but we're valued lower by the Market! Shows how undervalued this currently is. The fundamentals will shine through, just need patience and the seller to be finished.

[polythene] 15/3/2017 16:45

Forget sellers Azalea. Those who bought at much higher levels when it was a stonking buy are still suffering 2nd degree burns. Surely you have lost money.

[qs99] 15/3/2017 11:31

well, let's hope it can maintain the momentum...

[azalea] 15/3/2017 11:22

Sellers are continuing to get their fingers singed, anyone(big or small) following as the share price recovers, will get them burned.

[rivaldo] 15/3/2017 08:37

On Monday Premier Energy & Water Trust PLC reported their results. OPG is their largest holding at 8% of their total investments (£4.475m valuation), and they had this to say:



"PEWT’s largest investment, OPG Power Ventures (“OPG”), performed exceptionally well operationally, fully commissioning its second coal fired power station in Gujarat. As such interim results for the six months to September were strong, with a 40.8% increase in earnings, together with the declaration of a maiden dividend. OPG’s next investments will be in solar power, which should provide highly visible long term earnings. Despite the company’s positive development, its share price fell by 24.7% over the year."

[ballychan] 14/3/2017 13:06

Fingers crossed the forced seller is now completely out.FX rates are in OPGs favour and with likely interest rate cuts in 2017 this will help their bottom line. "Low inflation and crude oil prices will enable the Reserve Bank of India, or RBI, to reduce interest rates in 2017, perhaps by up to 0.50%–0.75%."

[qs99] 14/3/2017 11:43

going for it now, about time!

[jaws6] 14/3/2017 11:24

one thing more fx is working in OPG favour . INR high today more.

[qs99] 14/3/2017 11:16

well it would appear that the forced seller point was correct, why if you believe the forecasts would you be dumping all the way down to sub-50p IMO? anyway, hopefully cleared by now....gla and thanks for informative posts

[azalea] 14/3/2017 09:11

BSE index jumps to over 29,400pts. Passing of GST Bill is expected to add !% to GDP.

[ballychan] 10/3/2017 17:11

Sorry it's 562GW being targeted for completion in 2030. To no surprise the bulk of this is coal (47%), renewables (28%) and remainder mix of gas, nuclear, hydro.A google search of "indian energy scheme 2030" brings up an interesting pdf presentation, that is referenced in OPGs talk last night. OPG are already close to be being a 1GW producer, with 562GW 'on the table' I can see them doubling within 5-7 yrs.The one off incidents certainly have hit earnings this year, but as Cantor said, one-off incidents aren't enough to dampen the opportunity. Ajay mentioned there diverse operation of 300 customers has helped them stay in line with expectations, where other companies have suffered massively from the weather and coal spike.

[chalky] 10/3/2017 11:23

if you see from the rescheduled payment table 2017-2021 payments will decrease by 67 million,the biggest payment is after 2021 this saving will go to the profit and loss account with over time greater amounts of cash,because your'e reducing payments ,net profit will increase over the period and show up in increased p/e.

[the original goldbug] 10/3/2017 10:34

Interesting Ballychan.

A couple of observations on what you have shared. The free float has been reduced and liquidity is the enemy of the trader and investors at large. Though while a buyback makes sense from a theoretical perspective in practise it makes less sense due to reducing liquidity and even more importantly reducing their options for future growth.

I want to find out whether earnings could rise to 11-12p on the installed base, which may be possible given the fall of sterling. Earnings have been a stinker, but with increased load factors and reduced coal prices on the horizon we could be in for quite an uplift. We should not be too rash to capitalise the stock on current earnings which have had additional one off challenges such as demonetisation and the death of Jayalalita. Yes, you may think it was to lame to blame a death of politician, but she was a massive cult figure in Southern India and her death would have been the equivalent of Princess Diana's, which may well have had an effect on U.K. retails sales for example.

If coal prices stay stubbornly high prices of electricity will have to rise otherwise no one will invest in new capacity given the compressed current returns on capital. Who is making money in the Indian power sector? Coal will inevitably still be the main engine of growth of supply for India. Where is the 260GW going to come from and what is the timeline? Has the business model changed in anyway with a move to longer term contracts? What can be done to reduce payment days?

I am also interested to learn why they rescheduled debt payments. Is there another project in the pipeline? Remember all the rumours in the Summer about acquisitions? Clearly the depressed share price stops them issuing equity, but I still think they are very keen to grow their installed base.

[spud] 10/3/2017 09:33

Bally - A couple obvious mistakes & then the reissue. You only get one chance to make a first impression and in my books they failed. It made me 'uncomfortable' with my investment.Good luck to all that continue to hold tho'.spud

[ballychan] 10/3/2017 09:30

I've shared my notes from last night below, it was nice meeting a couple of you. Overall summary - operationally they are performing well. Institutions have told them to continue doing what they're doing - keep increasing YoY figures. They handed out an informative pack so my notes aren't too extensive.* Two IIs sold large holdings, nothing to do with fundamentals but had redemptions so forced sellers. Another 6 IIs have increased their holdings. In Dec 13, 35% was held by IIs, in Dec 16, 37% is held.* Both their margin (39%) and net debt versus ebitda ratio (3x) are at the top end compared to peers.* Discounted on PE basis compared to peers.* dividend increase from 15% to 33% in next 3-4 yrs.* Visited 70+ IIs over a year.* Met a big US II last week, impressed with Ops figures but concerned with the liquidity of the stock.* Share buy backs been looked into but that would further worsen the liquidity position.* coal price peaked to $55, now $40, China has re-instated the hours mined so expected to reduce further.* post demonetisation, expect improvements in scheduling.* India want 260GW to be supplied.

[napoleon 14th] 09/3/2017 21:13

I've been in & out of these in the last six years, more out than in recently.
It's a slam-dunk to me, but the vagiaries of cost overruns & delivery delays caught up with them.

I'd be interested in hearing from you what info you might glean from Palliwal, Gupta & Swami. More indian names than those, you will never find as Russell Peters would say......

[the original goldbug] 09/3/2017 17:39

Who is Ajay?

I am meeting Mr Gupta and Mr Swami who are over for a road trip and board meetings.

Edit: I see who Ajay is now having looked him up. You should try and get a steer on Vedanta too, which looks interesting at this juncture.

Anyway I am very happy to share notes. Please feel free to message me.

[ballychan] 09/3/2017 17:27

It's Ajay Palliwal this evening, 7.30 to 8pm.Do you mind me asking what event you're meeting them at next week?

[the original goldbug] 09/3/2017 17:10

Who is presenting Ballychan, as I am meeting them next week when they are in London.

[ballychan] 09/3/2017 16:45

Spud, was it a couple of particular things in the RNS or just the RNS as a whole?OPG are presenting at 7.30pm tonight, I'll be popping in to hear them. If anyone else is going, I'm in a blue striped shirt. Be nice to meet a fellow investor.

[spud] 09/3/2017 14:51

Sold out at average 50.25p. First trading loss for 13 months. The poorly presented and inaccurate RNS did for me.

Good luck to all holders.

spud

[azalea] 09/3/2017 08:44

Polythene WTF indeed. I suggest you read my post again, I said CRITICS and NON HOLDERS". These posters are those who knocked the shares,never held them and never intended to; their sole intention being to trawl through various threads simply to make a nuisance of themselves. One of the classics was the poster who claimed he sold shares in CEY at the top 200p(now circa 158p)" and bought into Highland Gold (HGM?) at a price below 100p. I caught him out by pointing out that the share price was never at that level at the time he claimed he bought.

I may well have said OPG was a buy, but did I advise posters to buy, which is a quite different matter? No one gets it right all the time, and each is responsible for his/her own investment decision. The individuals who have never held OPG but knocked them may have caused others to sell. Lets not forget several brokers and analysts - IC, Midas & Questor have recommended OPG with a target price of 134p. Perhaps you should write and complain to them?