Opg Power Ventures Share Discussion Threads

[source] 22/7/2016 10:43

Surely OPG management and its two brokers etc should know how much the seller is looking to offload? Last time management commented they stated the institute had sold out late last year/early this year? Or so...Hmmm guess not. Regards,Source.

[marvelman] 22/7/2016 10:08

...yes indeed when, whoever the seller is, disappears...please let it be soon as this is getting both boring and frustrating.

[ballychan] 22/7/2016 09:52

Whenever we bought shares it was for 750mw of power, and now the execution risk is all but gone, the share drops! With solar now adding to the bottom line, along with the stronger rupees, and a progressive dividend policy, this will re-rate. Just a matter of when.

[mozy123] 22/7/2016 09:14

TOG / Eddie - some great discussion. Adding energy mix is no bad thing in my opinion. Solar is very reliable and cash flows almost instantly.

When the time is right im sure management will want to expand further.

A good time to add/buy i think.

[qs99] 22/7/2016 08:55

TOG nicely put, ultimately 8% yield albeit with risk is not a bad story even if growth profile has tamed.....up to management and IR team to start earning their communications bucks!!

[the original goldbug] 22/7/2016 08:39

You make some reasonable points Eddie, though I think the jury is still out as to whether OPG will grow coal fired electricity production going forward.

Two things to consider. Firstly we are at maximum balance sheet and therefore it would be prudent to pay down the debt a little before embarking on another major capex program. I believe the debt is also NOT non recourse and that there are (or were) personal guarantees from Mr Gupta on the loans.

Secondly it would make no sense to dilute the equity for a new project at the current level. I believe they will only look to raise equity at a premium to previous financing rounds that is to say at least £1.

Putting aside our personal disappointments of at what level we purchased the stock, it nevertheless remains a near certain fact that the PE 2 years our will be at about 4.5-5 and the at the current share price the stock will yield 8% assuming the 30% payout a ratio.

I am not sure how many bonds out there yield 8%, while only paying out 30% of cash flows while also having an embedded growth option attached...

[eddie1980] 21/7/2016 16:41

Pretty much. EPS will grow as utilisation rates improve and debt decreases, but you can't price it as such as output will be significantly increasing every 3/4 years. Everyone loves a growth story that keeps on giving.

If the company had maintained the share price strength (better mgmt?), and was making good margins on current output, I am convinced they would have been able to/gone to the market for more funds to cover the equity element of new coal plants. But events otherwise has forced their hand to this route. If we were talking of EPS figures of 15, 16, 17p in say three years, through every increasing plants, this would have driven the share price one way.

Sadly, even the brokers have put the future growth plans for solar in monetary terms on the share price as very little.

The other thing which has disappointed me in recent months which I never fully realised when I held this previously, is that the significance of the price of leccy being linked (both ways) to the price of coal. I recall when the coal price increased a number of years ago, it had a negative impact on the profit to bottom line. But the recent price weakness in coal has lowered prices OPG can get, so the company does not benefit fully from lower input costs.

[mozy123] 21/7/2016 16:25

So basically - its not longer a growth stock but just a bond.....

[eddie1980] 21/7/2016 15:21

Current Morningstar EPS forecasts:

Historical (2016) - 7.04p
Forward (2017) - 8p

So, OPG is trading at 6.75 times forward earnings.

Cheap you may think, so what should it trade at? 8? 10? 12?

Issue one is that the company is no longer going to have another 300MW or 400MW of coal power in a few years, and the impact that would have on earnings.

Ignoring growth and basing it on the current earnings, whilst 6.75 may seem cheap, Aviva say is trading at a PE of 8 (based on 46p earnings), with a yield of over 6%.

Adjusting for the risk of small, illiquid, foreign AIM stocks, and compare to many large, recognisable UK stocks, I am not sure OPG is not fairly valued.

I am just annoyed at my own future valuations when I bought at 70p which were basically based on pushing coal based power and the impact that would have on bottom line. Pretty much straight after, the company was (initially) silent on future aims, then seemingly downgrading them to internally resourced renewables, with the resultant lower growth impact.

[eddie1980] 21/7/2016 15:10

Another point which no one seems to have considered, but is relevant both for current share price performance and for the seemingly downgraded internal ambitions of OPG - the stated aim of 300MW of solar over the next three years.

I have already flagged the lower actual output of solar relative to coal, but now onto something more linked to the current and future share price.

Whilst I take no notice of brokers price targets (generally nonsense, brokers are good for background and trends in EPS forecasts, but for valuations, they are obviously biased)

The broker stated that the 300MW would add about 13p to the valuation, or 10% on top of otherwise 130p. Ignore the absolute numbers, but consider that mgmts three year aim, is valued by the brokers to add about 10% to their entity valuation. Hardly inspiring stuff, given the output they have built to date.

Now consider what valuations the market would have put on the company when it was rapidly increasing its thermal production (and the increase to EPS those increases were bringing), and then the impact of looking forward and pricing in similar increases in future years. Growing bottom line by 20 or 30% every year through increased production can have a great impact (or at least support) for a share price.

Now we are basically being told (even by the brokers) that the future growth plans are actually adding little to the overall entity valuation, so from moving to any expectation that the company will grow capacity aggressively and thus bottom line, to one of little growth can have devastating impact on value. (cue see current share price.)

They really need to come up with something to get expectations up.

[source] 20/7/2016 16:12

...& it did. Well done numpty. Regards,Source.

[source] 19/7/2016 17:57

Yes, it might go lower (that's been the trend numpty). Regards,Source.

[azalea] 19/7/2016 15:32

I cannot see the time it takes to commission the remainder of the "installed 750MW capacity"taking more than just a few months now, September at the latest, end of H1. If nothing is said in the FY report 1 Aug; then I expect to see a flurry of statements by H1 results(November). Given the numbers forecast by Macquarie, the ridiculous low share price cannot last much longer.

[rivaldo] 18/7/2016 07:27

Macquarie have a 120p target here:

http ://www.proactiveinvestors.co.uk/companies/news/128262/opg-power-ventures-fully-delivered-on-targets-says-macquarie-128262.html

"OPG Power Ventures fully delivered on targets, says Macquarie
16:14 15 Jul 2016

Broker Macquarie rates India-focused power generator OPG Power Ventures PLC s 'outperform' and says "significant upside" is on the way.

Broker Macquarie rates India-focused power generator OPG Power Ventures PLC (LON:OPG) as 'outperform' and says "significant upside" is on the way.

It has a 12 month target and valuation of 120p on the stock, against a current price of 54.75p.

Since the beginning of 2014, the group has successfully delivered on its targets by more than doubling its ‘operatingR17; capacity, thereby removing any ‘residual̵7; pipeline risk," says analyst Dominic Nash.

Indian GDP (Gross domestic product) is nearing 8%, and OPG has derisked its business model and recently made a foray into the renewable space (solar).

"However, OPG’s share price has decoupled from fundamentals and is currently trading even below pre-2011 levels," the broker notes.

Macquarie believes it is unfeasible that coal will be displaced as the ‘workhorse' fuel. The OPG fleet is new and complies with coal-emissions regulations, it added.

It has now delivered its target of 750Mw of installed capacity, and once commissioned, the broker sees a two-fold increase in EBITDA (underlying earnings) to £86.3mln in 2018 estimates.

It recently announced the development of a 62Mw solar project in Karnataka, with a 25 year PPA (power purchase agreements),which the broker sees as 3p a share value accretive.

The firm is aiming for over 300MW of renewable projects in India, adding 16p or 13% to the broker's valuation.

Dividend yield should grow over 8% from 2018, the broker added."

[jjhbev] 14/7/2016 14:07

A second apology - I referred to Ballychan when I meant Eddie. Doh!

Sorry guys

[eddie1980] 14/7/2016 13:47

What must fund managers who hold stock think - 4 months to publish results, and 2 months later than the prior year without even acknowledging this fact. Where is the financial discipline?

One can only hope there was not a material disagreement with the auditors over the recognition of income, debtors or something which has held up the publication.

[igoe104] 14/7/2016 13:15

OPG Power Ventures Plc



Notice of FY16 Final Results



OPG Power Ventures Plc ("OPG", the "Group" or the "Company"), (AIM: OPG), the developer and operator of power generation facilities in India, is pleased to announce that its preliminary results for the year ended 31 March 2016 will be issued on Monday, 1 August 2016.

About OPG

OPG operates and develops power generation related assets in India, principally under the group captive model and currently has 750 MW of thermal power generation assets in operation. It aims to be recognised as a sector leader for the quality of its earnings, the growth it delivers and its performance against its own safety and environment management standards. For the next phase of growth, OPG has set a target to build at least 300 MW of solar energy projects in India in the next three years and its asset base will increasingly replicate India's forecast energy generation mix.



In the six months ended 30 September 2015, according to its unaudited results for the period, the Company generated revenues of approximately £56 million, EBITDA of £23.25 million and earnings per share of 3.41 pence. OPG is listed on the Alternative Investment Market ("AIM") of the London Stock Exchange and trades with a ticker symbol "OPG.L".



-ends-

[jjhbev] 14/7/2016 12:41

Apologies for a typo in my earlier post

The line:-
At 100% efficiency the original Chennai plants could produce around 300mwh per annum

Should read:-
At 100% efficiency the original Chennai plants could produce around 700mwh per annum

[azalea] 14/7/2016 12:16

In the last 4 years or so, the CEO Mr Arvin Gupta, has developed his company from a starting point of 72MW of generating capacity, to the current level of 750MW. All of which leads me to believe that he knows a thing or two about the industry going forward, by adding another string to the company's bow, with a modest investment in solar energy.

[eddie1980] 14/7/2016 11:43

hxxp://euanmearns.com/estimating-global-solar-pv-load-factors/

as noted, almost impossible to be accurate, but this gives a flavour. Max for India was 23%, with average at 16.5%. It may be a couple of years old, but I didn't find anything close to this as detailed an attempt to capture load factors from sites across the globe.

The main point was that you cannot simply assume the same generation from that 60MW as the existing 750MW, it is much lower. (albeit with lower costs attached.)

[marvelman] 14/7/2016 11:33

Good post JJ;informative as ever.

[jjhbev] 14/7/2016 11:25

Morning all

First of all, I see that “the seller” continues to sell. Another 85k shares this morning at 8.33am. Based on the pattern over the past week we can expect another 25k or 50k or more this afternoon. Actually, with this persistent level of selling I’m surprised that the share price hasn’t dropped even more than its already pitiful level. I’m also surprised at the absence of any holding RNS but – as noted elsewhere – OPG are not the best at timely reporting!

Anyway, moving on.

I think that Ballychan is in the right ballpark when it comes to the equivalent output of the solar plant v the thermal – although I believe that the equivalence is more like 25% than 20%.
At 100% efficiency the original Chennai plants could produce around 300mwh per annum
(Remember those golden days when this actually happened -
At an average plant size of around 75MW we could expect the solar plants to generate around 115mwh at 20% and 145mwh at 25%.

This level of output is in line with indications from other solar producers (e.g. Tata Solar) which indicate that a solar plant will generate something like 2mwh for each MW of plant capacity – i.e. a 62MW plant should generate around 125mwh.

Of course, the profit on solar production is well over 90% after operating costs. Depending on the level of debt taken on & the interest charge incurred my estimate is that the pre tax profit from these plants could be £1.75m-£2m. This is by no means a big number (albeit not far off 10% of last year’s pre tax profit). However it is very low risk, there is no exposure to fuel costs and/or energy taxes and the output is pre-sold long term. It is something I hope – and expect - that we will see replicated going forward. I also cannot see why there should be any of the delays in meeting timelines as has been the case with Chennai IV & Gujarat plus you don't need to "ramp up" solar panels.

All of the above figures (other than the share sale!!) are only my estimates so please dyor and if you have any other info please let me know.

[hashertu] 14/7/2016 10:03

Apologies if this is stating the obvious.
With solar PV there are diurnal and annual variations in the energy intensity at the PV site.
In addition, if the solar array is fixed (cheapest solution), the effective area pointing towards the sun changes significantly during the day.
In addition there is weather (cloud) to contend with.
I think you will have to trust that the company has done its sums properly with a reasonable contingency included.

[the original goldbug] 14/7/2016 08:54

I think your assumptions are pretty reasonable Olboffy. I would add that their aim might be to present themselves as a 'clean' energy provider to some degree as well. As you say though incremental returns will likely be lower from these type of projects going forward.