Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>On the 14 March, <a href="https://www.smartkarma.com/entities/tilt-renewables-ltd" target="_blank" data-smartkarma-citation="entities:24371:1" rel="noopener">Tilt Renewables Ltd (TLT NZ)</a> <a href="http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TLT/369079/342312.pdf" target="_blank" rel="noopener">announced</a> a binding agreement from <a href="https://www.smartkarma.com/entities/mighty-river-power" target="_blank" data-smartkarma-citation="entities:9933:1" rel="noopener">Mercury NZ Ltd (MCY NZ)</a> and PowAR by way of a Scheme at NZ$7.80/share, or a 99% premium to the undisturbed price.  PowAR is a partnership between <a href="https://www.smartkarma.com/entities/agl-energy-ltd" target="_blank" data-smartkarma-citation="entities:554:1" rel="noopener">AGL Energy Ltd (AGL AU)</a>, QIC, and Australia’s sovereign wealth fund.</p>
</div>
<div>
<p>Should the Scheme be approved, Tilt will sell its Australian assets to PowAR, and Mercury NZ would acquire the New Zealand assets. The Offer had the backing of Infratil and Mercury, holding 65.46% and 19.92% respectively.</p>
</div>
<div>
<p>On the 16 April, Tilt <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02364436-3A565443?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> it has amended the terms of the Scheme Implementation Agreement (SIA), such that PowAR/Mercury would now pay NZ$8.10/share. The SIA had also been amended to include the removal of provisions allowing Tilt to evaluate any competing proposal to the Scheme or to terminate the SIA if a superior proposal were to be received.</p>
<p>Given the SIA cannot be terminated in such circumstances, neither Mercury nor Infratil are released from their voting commitments. This means that the emergence of a superior alternative transaction is remote unless the SIA terminates due to reasons such as a condition not being fulfilled.</p>
</div>
<div>
<p>The Scheme Booklet is now <a href="http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TLT/373692/348047.pdf" target="_blank" rel="noopener">out</a>. The Scheme Meeting will be held on the 14 July, with an expected implementation date of the 3 August.</p>
<div>
<p>The Independent Advisor has concluded the Scheme was "reasonable". </p>
</div>
<div>
<p>More below the fold.</p>
</div>
</div>


On the 14 March, Tilt Renewables Ltd (TLT NZ) announced a binding agreement from Mercury NZ Ltd (MCY NZ) and PowAR by way of a Scheme at NZ$7.80/share, or a 99% premium to the undisturbed price.  PowAR is a partnership between AGL Energy Ltd (AGL AU), QIC, and Australia’s sovereign wealth fund.


Should the Scheme be approved, Tilt will sell its Australian assets to PowAR, and Mercury NZ would acquire the New Zealand assets. The Offer had the backing of Infratil and Mercury, holding 65.46% and 19.92% respectively.


On the 16 April, Tilt announced it has amended the terms of the Scheme Implementation Agreement (SIA), such that PowAR/Mercury would now pay NZ$8.10/share. The SIA had also been amended to include the removal of provisions allowing Tilt to evaluate any competing proposal to the Scheme or to terminate the SIA if a superior proposal were to be received.
Given the SIA cannot be terminated in such circumstances, neither Mercury nor Infratil are released from their voting commitments. This means that the emergence of a superior alternative transaction is remote unless the SIA terminates due to reasons such as a condition not being fulfilled.


The Scheme Booklet is now out. The Scheme Meeting will be held on the 14 July, with an expected implementation date of the 3 August.

The Independent Advisor has concluded the Scheme was "reasonable". 


More below the fold.



Tilt Renewables: Scheme Booklet Out. EGM Firmed

New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>Power Points<br>Wholesale Prices Power On — June 2021</h2>
<p></p>
<div>
<p>Whilst hydro conditions eased in May (lake levels are now ~70% of average vs. ~60% at month start), there has been no wholesale electricity price respite with a record OTA month average price of NZ$295/MWh. Both short-dated and long-dated ASX futures prices rose to record levels, shrugging off news of possible grid-scale solar and industrial plant closure. We are neutral on the sector overall, with our preferred stocks remaining Contact Energy (CEN) and Genesis Energy (GNE).</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/866/original/image_67346231021622684888126.png?1622684893" class="editor-image img-responsive" data-smartkarma-image-id="210866"></figure>
</div>
<div>
<h3>CEN and Meridian Energy (MEL) investor days focus on replacement demand</h3>
</div>
<div>
<p>Both of the MEL and CEN investor days held during the month&nbsp;focussed&nbsp;on how they intend to replace NZAS demand, if it were to close at the end of 2024. Process heat, data centres and hydrogen remain the answers. If&nbsp;Fonterra&nbsp;continues to show no interest in converting its dairy factories to electricity, hydrogen will likely be needed. That said, in our view, hydrogen probably only needs to be perceived as a credible alternative to ensure when NZAS seeks the expected contract extension, it can no longer dictate terms to MEL and CEN. With NZAS making ~NZ$1,350 EBITDA/tonne of aluminium produced in May 2021, the smelter is very profitable, especially compared to a year ago when it was losing ~-NZ$100/tonne. We estimate at current aluminium prices, NZAS’s break-even electricity price is ~NZ$125/MWh.</p>
</div>
<div>
<h3>Grid-scale solar takes a step closer to reality, likewise industrial closures</h3>
</div>
<div>
<p>May 2021 saw the announcement from new market entrant, Lodestone Energy, that it is planning to build five solar plants capable of producing 229MW (400GWh). It is the most credible solar plan we have seen to date. However, May 2021 also saw Refining NZ take a step closer to converting to an import terminal which will result in a ~-300GWh electricity demand from current levels. The market appears unperturbed given long-dated OTA ASX futures prices increased +4% in May 2021 to a record NZ$141/MWh.</p>
</div>
<div>
<h3>Big news month ahead</h3>
</div>
<div>
<p>June 2021 has several significant electricity sector related news announcements expected. The final Climate Change Commission report should currently be with the Government, with public release expected mid-June. Indications are there will be relatively minor changes, dampening slightly electricity demand growth (albeit demand growth will still be very high). Towards month end several strategic review announcements will either have happened or be imminent. There’s GNE’s Kupe strategic review, Trustpower's (TPW) retail strategic review and Norske Skog’s Kawerau Tasman Mill review.</p>
</div>
<div>
<div>
<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
</div>
</div>

Power Points Wholesale Prices Power On — June 2021


Whilst hydro conditions eased in May (lake levels are now ~70% of average vs. ~60% at month start), there has been no wholesale electricity price respite with a record OTA month average price of NZ$295/MWh. Both short-dated and long-dated ASX futures prices rose to record levels, shrugging off news of possible grid-scale solar and industrial plant closure. We are neutral on the sector overall, with our preferred stocks remaining Contact Energy (CEN) and Genesis Energy (GNE).



CEN and Meridian Energy (MEL) investor days focus on replacement demand


Both of the MEL and CEN investor days held during the month&nbsp;focussed&nbsp;on how they intend to replace NZAS demand, if it were to close at the end of 2024. Process heat, data centres and hydrogen remain the answers. If&nbsp;Fonterra&nbsp;continues to show no interest in converting its dairy factories to electricity, hydrogen will likely be needed. That said, in our view, hydrogen probably only needs to be perceived as a credible alternative to ensure when NZAS seeks the expected contract extension, it can no longer dictate terms to MEL and CEN. With NZAS making ~NZ$1,350 EBITDA/tonne of aluminium produced in May 2021, the smelter is very profitable, especially compared to a year ago when it was losing ~-NZ$100/tonne. We estimate at current aluminium prices, NZAS’s break-even electricity price is ~NZ$125/MWh.


Grid-scale solar takes a step closer to reality, likewise industrial closures


May 2021 saw the announcement from new market entrant, Lodestone Energy, that it is planning to build five solar plants capable of producing 229MW (400GWh). It is the most credible solar plan we have seen to date. However, May 2021 also saw Refining NZ take a step closer to converting to an import terminal which will result in a ~-300GWh electricity demand from current levels. The market appears unperturbed given long-dated OTA ASX futures prices increased +4% in May 2021 to a record NZ$141/MWh.


Big news month ahead


June 2021 has several significant electricity sector related news announcements expected. The final Climate Change Commission report should currently be with the Government, with public release expected mid-June. Indications are there will be relatively minor changes, dampening slightly electricity demand growth (albeit demand growth will still be very high). Towards month end several strategic review announcements will either have happened or be imminent. There’s GNE’s Kupe strategic review, Trustpower's (TPW) retail strategic review and Norske Skog’s Kawerau Tasman Mill review.



Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Power Points: Wholesale Prices Power On — June 2021


For the month of May, 11 new deals were discussed on Smartkarma with an overall announced deal size of ~US$7.3bn.



Clicking on the company name in the table below will take you to the entity page where you can read the initial insight(s) written by Smartkarma contributors on these new deals and follow-up discussions, or simply click on the insight link(s) below the name.







New Deals


Industry


Size (US$bn)


Type


Premium




Australia




APN Property Group (APD AU) 
Property
0.2
Scheme
50%


APN Prop (APD AU): Dexus' Done Deal



Boral Ltd (BLD AU) 
Construction
4.8
Off-market
Nil


Boral Ltd (BLD AU): Seven's Nil Premium



Japara Healthcare (JHC AU) 
Healthcare
0.2
Scheme
30%


Japara Healthcare (JHC AU): Here Comes The Calvary


 



Hong Kong




Chong Hing Bank (1111 HK) 
Banking
0.2
Scheme
51.2%



Chong Hing Bank (1111 HK): Takeover Talk As Shares Pop
Chong Hing Bank (1111 HK): Yue Xiu's Offer Is Light



 



Japan




Aomori Bank (8342 JP) / Michinoku Bank (8350 JP) 
Bank
0.6
Merger



Aomori Bank &amp; Michinoku Bank Merger - Nothing To Write Home About Yet



EPS Holdings (4282 JP) 
Data/software
0.1
Tender Offer
35.5%


Another Too-Cheap MBO as Founder Takes Out EPS


 Locoguide (4497 JP) / Kufu (4399 JP)

Real estate
0.4
Merger



Locoguide (4497 JP) - Kufu (4399 JP): Merger Is a Done Deal



Maruka Machinery (7594 JP) / Furusato Industries (8087 JP) 
Trading
0.4
Merger



A Complex SmallCap Merger in Japan: Maruka (7594) And Furusato (8087)



Secom Joshinetsu (4342 JP) 
Security
0.3
Tender Offer
66.2%


Secom To Finally Buy Out Affiliate Secom Joshinetsu (4342)








Malaysia




Can-One Bhd (CAN MK) 
Manufacturing
0.1
MTO
15.8%


Can-One (CAN MK)? Yeoh Can Lah!



IHH Healthcare (IHH MK) 
Healthcare
N/A
N/A
N/A


IHH Healthcare (IHH MK): More Medicine For Mitsui?


Source: Smartkarma Insights






The above does not include BetMakers Technology Group (BET AU) lobbing a non-binding offer of A$4bn (A$1bn cash, $3bn scrip into BET) for Tabcorp Ltd (TAH AU)'s wagering and media division, and Apollo's prior tilt - Tabcorp (TAH AU): Apollo Shows Its Hand.

Nor does the table include the rumoured merger between  Angang Steel Co Ltd (H) (347 HK) and Bengang Steel (000761 CH) - Amalgamated Steel: Merging Angang &amp; Bengang As, Bs, and Hs.



The average premium for the new deals announced (or first discussed) in May was ~41%, with a year-to-date average of ~31% (78 deals). This compares to the average premium for all deals in 2020 (158 deals) and 2019 (145 deals) of 31% and 31.5% respectively. 




Summary of News in May of Arb Situations On Smartkarma's Radar



(Again, click on the company names to take to you to the insights and/or discussion posts for a more comprehensive read-through on each situation)






Australia


Comments (with links to announcements &amp; insights)




3P Learning (3PL AU) 

No May update




Bingo Industries (BIN AU) 

1-May: Capital Group announced it has sold its entire 9.7% stake in Bingo Industries (BIN AU).




Crown Resorts (CWN AU) 

10-May: Crown Resorts: Blackstone &amp; Star Place Their Bets
17-May: Crown Says Blackstone's Bid Is Light. Undecided On Star
20-May: Crown Resorts Ltd: Blackstone Offer Rejected, Star Offer May Still Not Reflect True Forward Value




Galaxy Resources (GXY AU) 

No May update




Link Administration Holdings (LNK AU) 

27-May: Link Group (LNK AU): KKR Opens The Bidding For PEXA
31-May: Link Admin (LNK AU) Goes IPO Route For PEXA Afterall




Mainstream Group Holdings Ltd (MAI AU) 

2-May: Mainstream (MAI AU): More-Than-Double in Less than 2 Months After Apex Bump
6-May: Mainstream (MAI AU): Bidding War Continues as SS&amp;C Overbids for the 4th Time
14-May: Mainstream (MAI AU): +120% in ~2 Months but Bidding War Continues....




McPherson's Ltd (MCP AU) 

No May update




Mortgage Choice (MOC AU) 

26-Mau FIRB gives its approval



Primewest Group Ltd (PWG AU)

14-May: Target's Statement and Bidder's Statements were published. Primewest Group Ltd (PWG AU)'s Board has unanimously recommended shareholders to accept the Offer. 




Think Childcare (TNK AU) 

12-May: Think Childcare (TNK AU) has agreed to extend the Exclusivity Period with Busy Bees to 31st May 2021 (vs. original deadline of 14th May). This is still a non-binding deal with an expected completion date to be in 1Q CY22. 




Vitalharvest Freehold Trust (VTH AU) 

1-May: And so it goes - MAFM bumps its Offer for Vitalharvest Freehold Trust (VTH AU) to $1.26.
7-May: MAFM exercises a call option and acquires 16.2% of Vitalharvest Freehold Trust (VTH AU).
28-May Roc bumps its Offer for Vitalharvest Freehold Trust (VTH AU) to $1.29/share.  And says it will overbid any MAFM counter! 




Vocus Communications (VOC AU) 

10-May: Vocus Comms (VOC AU): MIRA/Aware's Done Deal
19-May: Vocus Comms (VOC AU): MIRA/​Aware’s Scheme Doc Despatched. EGM On 22 June










Hong Kong


Comments (with links to announcements &amp; insights)




Beijing Digital Telecom (6188 HK) 

1-May: Beijing Digital (6188 HK): Offer Now Open. IFA Says Fair
20-May: Beijing Digital Telecom (6188 HK)'s MGO is now unconditional in all respects. 




China Machinery Engineering (1829 HK) 

28-May: China Machinery Engineering (1829 HK): Movement In The Works?




China Traditional Chinese Medicine (570 HK) 

7-May: In its monthly update regarding a potential Offer, China Traditional Chinese Medicine (570 HK) says there is no update.




China Youzan Limited (8083 HK) 

10-May: China Youzan (8083 HK): Reality Check As Shares Rollover




Kerry Logistics Network (636 HK) 

4-May: Kerry Logistics Network (636 HK) will hold an EGM on the 26 May for shareholders to vote on the sale of the Hong Kong and Taiwan warehouse businesses to Kerry Holdings. 
26-May: At its SGM, Kerry Logistics Network (636 HK) shareholders overwhelmingly approved the sale of its Hong Kong, Taiwan warehouse business to Kerry Holdings.




New Century REIT (1275 HK) 

No May update




Rivera Holdings (281 HK) 

No April update




Sichuan Languang Justbon Service Group (2606 HK) 

3-May: Languang Justbon (2606 HK): Offer Now Open - For Up To Four Months










India


Comments (with links to insights)




Mphasis Ltd (MPHL IN) 

4-May: The Detailed Public Statement on Mphasis Ltd (MPHL IN) has been released. The Open Offer is scheduled tentatively to run from 18 June to 1 July, which means it is running Very Tight and the option is worth a bit less than I expected. But that just means there is more gamma. One could get big at the high Rs 1600s area. 




Vedanta Ltd (VEDL IN) 

4-May: Vedanta Now Caught Up With Peers - A Different Skew Ahead










Japan


Comments (with links to announcements &amp; insights)




BeNEXT Group (2154 JP) 
No May update



Cocokara Fine (3098 JP) 
No May update



Fuji Kosan Company (5009 JP) 
17-May:  Fuji Kosan Company (5009 JP) has responded to Aslead Strategic Value Fund's Tender Offer with its initial Target Opinion Statement which is "Opinion Withheld." This is because Fuji Kosan hasn't actually done anything yet - two weeks in. They have sent questions to Aslead, and Aslead has five business days to respond. This is slow-walking it. This tender offer is likely to be extended because of that.



Hitachi Metals (5486 JP) 

5-May: Hitachi Metals - Should I Stay or Should I Go Now?




Honshu Chemical Industry (4115 JP) 

13-May: Honshu Chemical (4115) Shareholders Perhaps One Day From a Wrong Price Takeover
16-May:: Honshu Chemical Shareholders Get the Short End of the Stick As The Board Is Ex-Gourd




Invesco Office J Reit (3298 JP) 

6-May:  Invesco Office OPPOSES Starwood Hostile Offer and Gets a Distinctly Beige Knight
11-May:  Starwood Bumps Terms, Lowers Threshold on Invesco Office
13-May:  Invesco Office's Terrible, Horrible, No Good Very Bad Day... Changes Things
20-May:  Invesco Office's Beige Knight (Deemed Dirty Gray By Markets) Suddenly Looks Brighter and Whiter
23-May:  Starwood Responds to Invesco Office's White Knight Proposal
24-May: Starwood has extended their Tender Offer on Invesco Office J Reit (3298 JP) from the 24th of May to 15th of June after the close of the 24th. They did not raise the price. This is basically the equivalent of Starwood calling Invesco's bluff. They can extend again if they want but they are going to make Invesco come out. They can change price later if they think it necessary.



Japan Asia (3751 JP)
No May update



Sawada Holdings (8699 JP) 

9-May:  Sawada Selldown Was NOT Done - Shareholder Structure Looks Different Now
23-May: Sawada Is A Different Stock Now
31-May:  Be Careful of Expectations on Sawada (8699)




Toshiba Corp (6502 JP) 

14-May: Toshiba – Shareholder Returns Trump Weak Guidance
17-May: Toshiba Results &amp; Shareholder Return - Possibly Big Impact Buyback Coming











New Zealand


Comments 




Tilt Renewables Ltd (TLT NZ) 

No May update











Singapore


Comments (with links to announcements)




Procurri Corporation (PROC SP) 

3-May: The Partial Offer has not become unconditional in all respects on the Closing Date and has therefore lapsed










Thailand


Comments




Intouch Holdings (INTUCH TB) 

No May update




Vinythai Public Co (VNT TB) 

No May update






<h2>Tilt Renewables<br>Final Flourish Ahead of Bourse Exit&nbsp;</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Tilt&nbsp;Renewables' (TLT) last financial result as a listed entity was a good one, with FY21 EBITDAF of A$74.9m towards the top end of its guidance range despite&nbsp; soft wind conditions.&nbsp;TLT's&nbsp;sale remains on track and will likely see it&nbsp;delist&nbsp;in August. Looking ahead, the focus for TLT in FY22 will be bringing development options to financial close, with FY21 dominated by completing its&nbsp;Waipipi&nbsp;and&nbsp;Dundonnell&nbsp;wind farms. We have lifted our target price +NZ0.30/share to NZ$8.10/share, the revised purchase price. Our rating remains NEUTRAL.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/205/935/original/image_3304398321620890924942.png?1620890925" class="editor-image img-responsive" data-smartkarma-image-id="205935"></figure>
<div>
<h3>Strong final result as a listed entity</h3>
</div>
<div id="m_8364407004475192870ivxdd">
<p>TLT's&nbsp;final result as a listed company was a strong one. FY21 EBITDAF of A$74.9m was toward the top of A$65m to A$80m guidance, and +A$8.9m above our forecast. Better than expected effective Australian prices and lower than expected generation costs caused the uplift over our forecasts, and the delayed commissioning of&nbsp;Dundonnell&nbsp;and subsequently lower depreciation recognised in the year led to an improved NPAT&nbsp;performance. EBITDAF was down -A$42m on FY20, with the sale of&nbsp;Snowtown&nbsp;II (-A$56m), weak wind generation and soft prices in Australia (-A$35m), and the commissioning of&nbsp;Waipipi&nbsp;and&nbsp;Dundonnell&nbsp;(+A$47m) the key changes.</p>
</div>
<div>
<h3>Sale process tracking to August completion, with possible dividend payment before then</h3>
</div>
<div id="m_8364407004475192870imil1">
<p>Management confirmed that the sale of the business remains on track to reach financial close by the end of August 2021. Whilst regulatory, shareholder and court approvals are required, it is hard to see anything derailing the sales process. TLT also indicated that, depending on progression of Rye Park, it may pay a fully imputed dividend to shareholders (up to 8.1cps) before the&nbsp;acquisition is completed. The value of the dividend will come off the NZ$8.10 takeover price per share, meaning there is little impact for shareholders. We expect a decision to be made on the dividend in the next two months.&nbsp;</p>
</div>
<div>
<h3>Getting to financial close and developing options the focus for FY22</h3>
</div>
<div id="m_8364407004475192870i1p7s">
<p>TLT's&nbsp;key focus in FY22 will be progressing its development&nbsp;options — its&nbsp;Rye Park wind farm (412MW) in NSW is&nbsp;the next cab off the rank, and should reach financial close in 1H22. TLT is hopeful of receiving resource consent for its&nbsp;Northland&nbsp;Omamari&nbsp;wind farm (73MW) in 2021.</p>
<p>Whilst the FY22 outlook has no direct relevance for TLT investors, the NZ assets will remain listed as part of MCY, and AGL will own 20% of the Australian business. FY22 guidance is moderately better than our forecasts, with NZ guidance consistent with the ~NZ$50m MCY indicated when it announced the TLT deal.</p>
</div>
<div>
<div>
<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
</div>
</div>

Tilt Renewables Final Flourish Ahead of Bourse Exit&nbsp;

NEUTRAL
Tilt&nbsp;Renewables' (TLT) last financial result as a listed entity was a good one, with FY21 EBITDAF of A$74.9m towards the top end of its guidance range despite&nbsp; soft wind conditions.&nbsp;TLT's&nbsp;sale remains on track and will likely see it&nbsp;delist&nbsp;in August. Looking ahead, the focus for TLT in FY22 will be bringing development options to financial close, with FY21 dominated by completing its&nbsp;Waipipi&nbsp;and&nbsp;Dundonnell&nbsp;wind farms. We have lifted our target price +NZ0.30/share to NZ$8.10/share, the revised purchase price. Our rating remains NEUTRAL.


Strong final result as a listed entity


TLT's&nbsp;final result as a listed company was a strong one. FY21 EBITDAF of A$74.9m was toward the top of A$65m to A$80m guidance, and +A$8.9m above our forecast. Better than expected effective Australian prices and lower than expected generation costs caused the uplift over our forecasts, and the delayed commissioning of&nbsp;Dundonnell&nbsp;and subsequently lower depreciation recognised in the year led to an improved NPAT&nbsp;performance. EBITDAF was down -A$42m on FY20, with the sale of&nbsp;Snowtown&nbsp;II (-A$56m), weak wind generation and soft prices in Australia (-A$35m), and the commissioning of&nbsp;Waipipi&nbsp;and&nbsp;Dundonnell&nbsp;(+A$47m) the key changes.


Sale process tracking to August completion, with possible dividend payment before then


Management confirmed that the sale of the business remains on track to reach financial close by the end of August 2021. Whilst regulatory, shareholder and court approvals are required, it is hard to see anything derailing the sales process. TLT also indicated that, depending on progression of Rye Park, it may pay a fully imputed dividend to shareholders (up to 8.1cps) before the&nbsp;acquisition is completed. The value of the dividend will come off the NZ$8.10 takeover price per share, meaning there is little impact for shareholders. We expect a decision to be made on the dividend in the next two months.&nbsp;


Getting to financial close and developing options the focus for FY22


TLT's&nbsp;key focus in FY22 will be progressing its development&nbsp;options — its&nbsp;Rye Park wind farm (412MW) in NSW is&nbsp;the next cab off the rank, and should reach financial close in 1H22. TLT is hopeful of receiving resource consent for its&nbsp;Northland&nbsp;Omamari&nbsp;wind farm (73MW) in 2021.
Whilst the FY22 outlook has no direct relevance for TLT investors, the NZ assets will remain listed as part of MCY, and AGL will own 20% of the Australian business. FY22 guidance is moderately better than our forecasts, with NZ guidance consistent with the ~NZ$50m MCY indicated when it announced the TLT deal.



Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Tilt Renewables: Final Flourish Ahead of Bourse Exit

<h2>Power Points<br>Treading Water&nbsp;— May 2021</h2>
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<p>As winter approaches hydro lake storage remains well below normal at 61% of average, albeit it did not deteriorate during April 2021&nbsp;and wholesale electricity prices remain elevated (Otahuhu&nbsp;price averaged NZ$268/MWh). We expect the current conditions to favour Contact Energy (CEN) and Genesis Energy (GNE) over Meridian Energy (MEL) and Mercury (MCY). After a strong share price performance in April, we are downgrading MCY to UNDERPERFORM, with CEN and GNE our preferred electricity sector exposures.</p>
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<h3>Low hydro storage persists, but does not deteriorate</h3>
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<p>There was just enough rain in April 2021 to&nbsp;see hydro storage track sideways. The market ramped up its response to the current conditions, with&nbsp;Transpower&nbsp;and MEL providing regular updates on hydro risk curves (that show the risk of NZ running out of water) and the trigger point where MEL can ask NZAS to reduce electricity demand respectively. In addition, MEL and NZAS agreed an additional demand reduction mechanism (although we don't expect NZAS to voluntarily reduce demand given it is making record profits).</p>
<p>The wholesale electricity market also largely tracked sideways. Whilst prices remain very high (the average April 2021&nbsp;Otahuhu&nbsp;price was the second highest on record), the increase on March 2021 was limited (+9%). ASX futures prices show a similar story, with the average price for the next 12 months sitting just below the&nbsp;record at&nbsp;NZ$233/MWh.</p>
<p>April also saw some political and regulatory comment on the current situation. Whilst both the politicians and regulators are watching the situation carefully, there does not appear to be any significant&nbsp;alarm bells at this stage.&nbsp;</p>
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<h3>Thermal generators in the best position to benefit of the next few months</h3>
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<p>With GNE's Unit 5 back in operation (having undergone maintenance for most of April) it should be long generation for the remainder of FY21. CEN is also well placed to be long generation during the winter months. Thermal generation will continue to be important even after it rains as the hydro generators seek to refill their storage lakes. Whilst we do not advocate investing in particular stocks on the basis of short-term wholesale electricity market gyrations, both CEN and GNE (OUTPERFORM) are our preferred electricity stocks and will benefit from short-term earnings momentum. MEL (UNDERPERFORM) is the opposite as it laps a record result, deals with below average generation, and swallows the NZAS electricity price reduction.</p>
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<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
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<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
</div>
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Power Points Treading Water&nbsp;— May 2021

As winter approaches hydro lake storage remains well below normal at 61% of average, albeit it did not deteriorate during April 2021&nbsp;and wholesale electricity prices remain elevated (Otahuhu&nbsp;price averaged NZ$268/MWh). We expect the current conditions to favour Contact Energy (CEN) and Genesis Energy (GNE) over Meridian Energy (MEL) and Mercury (MCY). After a strong share price performance in April, we are downgrading MCY to UNDERPERFORM, with CEN and GNE our preferred electricity sector exposures.



Low hydro storage persists, but does not deteriorate


There was just enough rain in April 2021 to&nbsp;see hydro storage track sideways. The market ramped up its response to the current conditions, with&nbsp;Transpower&nbsp;and MEL providing regular updates on hydro risk curves (that show the risk of NZ running out of water) and the trigger point where MEL can ask NZAS to reduce electricity demand respectively. In addition, MEL and NZAS agreed an additional demand reduction mechanism (although we don't expect NZAS to voluntarily reduce demand given it is making record profits).
The wholesale electricity market also largely tracked sideways. Whilst prices remain very high (the average April 2021&nbsp;Otahuhu&nbsp;price was the second highest on record), the increase on March 2021 was limited (+9%). ASX futures prices show a similar story, with the average price for the next 12 months sitting just below the&nbsp;record at&nbsp;NZ$233/MWh.
April also saw some political and regulatory comment on the current situation. Whilst both the politicians and regulators are watching the situation carefully, there does not appear to be any significant&nbsp;alarm bells at this stage.&nbsp;


Thermal generators in the best position to benefit of the next few months


With GNE's Unit 5 back in operation (having undergone maintenance for most of April) it should be long generation for the remainder of FY21. CEN is also well placed to be long generation during the winter months. Thermal generation will continue to be important even after it rains as the hydro generators seek to refill their storage lakes. Whilst we do not advocate investing in particular stocks on the basis of short-term wholesale electricity market gyrations, both CEN and GNE (OUTPERFORM) are our preferred electricity stocks and will benefit from short-term earnings momentum. MEL (UNDERPERFORM) is the opposite as it laps a record result, deals with below average generation, and swallows the NZAS electricity price reduction.



Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Power Points: Treading Water — May 2021

New Zealand

Tilt Renewables Limited owns and develops renewable energy plants. The Company generates electricity through wind farms. Tilt Renewables operates in New Zealand and Australia.

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