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>Volatile Start to 2021 — February 2021</h2>
<p>&nbsp;</p>
<p>2021 has started with a bang with huge ETF induced share price movements, Rio Tinto (RIO) announcing NZAS will stay open for longer, the Climate Change Commission (CCC) releasing its draft report, a flurry of quarterly reports and hydro conditions starting to tighten. 2021 is set to be an&nbsp;eventful year, with ETF influence likely to continue and the CCC finalising its report in May 2021 before the politicians have their say at the end of the year.&nbsp;And who knows what will happen with hydrology. We continue to prefer Genesis Energy (GNE) as it offers good value, a good dividend yield and we believe its decarbonisation strategy will payoff&nbsp;in time. At the other end of the spectrum, Mercury (MCY) and Meridian (MEL) remain expensive.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/186/657/original/image_94310271721612396547368.png?1612396552" class="editor-image img-responsive" data-smartkarma-image-id="186657"></figure>
<h3>ETF flows cause huge share price volatility</h3>
<p>MEL and MCY have long&nbsp;benefitted&nbsp;from being part of the MSCI, providing a steady demand for their shares. December and January saw the attention firmly switch to the&nbsp;iShares&nbsp;Global Clean Energy&nbsp;ETFs, of which MEL and Contact Energy (CEN) are members. January ended up being a volatile month for these stocks, rising +26% and +20% respectively early in the month, before ending January down -4% and -5%. Whilst the S&amp;P Global Clean Energy Index&nbsp;appears likely to undergo changes in April 2021, we expect&nbsp;ETFs&nbsp;to continue to be a strong, volatile influence on the electricity stocks.</p>
<h3>NZAS and CCC announcements generally positive for the sector</h3>
<p>RIO and the CCC provided January's key announcements. NZAS staying open until at least 2024 provides near-term certainty and we expect CEN and MEL to shortly commit to building new generation. With NZAS a very profitable smelter (we estimate ~NZ$200m EBITDA less capex) we expect RIO will seek an extension to its contract. The CCC announcement confirmed that electricity is the fuel of choice to decarbonise the economy, which will support wholesale electricity prices, the sector’s key value driver.</p>
<h3>Wholesale market tightens, resulting in firming wholesale electricity prices</h3>
<p>Wholesale electricity prices firmed in January due to a tightening hydro situation (January 2021 inflows were 74% of average) and the ongoing gas issues limiting backup thermal generation. The average Otahuhu (OTA) price was NZ$137/MWh, up +14% on December 2020. The NZAS decision and hydro situation has also seen a big increase in electricity futures prices. The short-dated OTA price increased +14% to NZ$159/MWh and the long-dated price increased +20% to NZ$122/MWh on December 2020. We expect these prices to benefit sector profitability in the medium-term, and they are also sending a strong signal that new generation is required. MEL is currently most exposed to a dry 2021 and MCY stands to benefit the most if North Island hydro conditions remain average.</p>
<p><strong>Andrew Harvey-Green</strong><br>andrew.harvey-green@forsythbarr.co.nz<br>+64 4 495 8185&nbsp;</p>
<p><strong>Scott Anderson</strong><br>scott.anderson@forsythbarr.co.nz<br>+64 4 914 2219</p>

Power Points Volatile Start to 2021 — February 2021
&nbsp;
2021 has started with a bang with huge ETF induced share price movements, Rio Tinto (RIO) announcing NZAS will stay open for longer, the Climate Change Commission (CCC) releasing its draft report, a flurry of quarterly reports and hydro conditions starting to tighten. 2021 is set to be an&nbsp;eventful year, with ETF influence likely to continue and the CCC finalising its report in May 2021 before the politicians have their say at the end of the year.&nbsp;And who knows what will happen with hydrology. We continue to prefer Genesis Energy (GNE) as it offers good value, a good dividend yield and we believe its decarbonisation strategy will payoff&nbsp;in time. At the other end of the spectrum, Mercury (MCY) and Meridian (MEL) remain expensive.

ETF flows cause huge share price volatility
MEL and MCY have long&nbsp;benefitted&nbsp;from being part of the MSCI, providing a steady demand for their shares. December and January saw the attention firmly switch to the&nbsp;iShares&nbsp;Global Clean Energy&nbsp;ETFs, of which MEL and Contact Energy (CEN) are members. January ended up being a volatile month for these stocks, rising +26% and +20% respectively early in the month, before ending January down -4% and -5%. Whilst the S&amp;P Global Clean Energy Index&nbsp;appears likely to undergo changes in April 2021, we expect&nbsp;ETFs&nbsp;to continue to be a strong, volatile influence on the electricity stocks.
NZAS and CCC announcements generally positive for the sector
RIO and the CCC provided January's key announcements. NZAS staying open until at least 2024 provides near-term certainty and we expect CEN and MEL to shortly commit to building new generation. With NZAS a very profitable smelter (we estimate ~NZ$200m EBITDA less capex) we expect RIO will seek an extension to its contract. The CCC announcement confirmed that electricity is the fuel of choice to decarbonise the economy, which will support wholesale electricity prices, the sector’s key value driver.
Wholesale market tightens, resulting in firming wholesale electricity prices
Wholesale electricity prices firmed in January due to a tightening hydro situation (January 2021 inflows were 74% of average) and the ongoing gas issues limiting backup thermal generation. The average Otahuhu (OTA) price was NZ$137/MWh, up +14% on December 2020. The NZAS decision and hydro situation has also seen a big increase in electricity futures prices. The short-dated OTA price increased +14% to NZ$159/MWh and the long-dated price increased +20% to NZ$122/MWh on December 2020. We expect these prices to benefit sector profitability in the medium-term, and they are also sending a strong signal that new generation is required. MEL is currently most exposed to a dry 2021 and MCY stands to benefit the most if North Island hydro conditions remain average.
Andrew Harvey-Green andrew.harvey-green@forsythbarr.co.nz +64 4 495 8185&nbsp;
Scott Anderson scott.anderson@forsythbarr.co.nz +64 4 914 2219

Power Points: Volatile Start to 2021 — February 2021

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<h2>Summary and Conclusion</h2>
<p><strong>What's Original?</strong></p>
<p>This insight is an in-depth look into the Asian wind energy industry, covering the value chain and related companies at each key stage of the value chain. Our research includes the following:</p>
<p><strong>Industry Background:</strong> This includes an in-depth analysis on the wind energy sector with an overview of wind energy, including the growth of global installed capacity wind energy and analysis of the Asian wind energy market.</p>
<p>We examine both global onshore and offshore wind energy and differences in installation costs, annual investments, levelised cost of electricity (LCoE) and the declining trend in installation costs.</p>
<p>The potential capacity level of offshore wind energy is higher than onshore, though installation costs, O&amp;M and transportation costs are currently higher for offshore which is clearly reflected in the LCoE of the two categories.</p>
<p>When comparing total global wind capacity against the Asian market alone, over the last decade the Asian market’s growth rate was higher than the global rate and 51% of global new capacity additions were made in the Asian region.</p>
<p>The majority of Asian new capacity installed in Asian market was in APAC and China remained the world’s largest onshore market accounting for 37% of total onshore installations in 2019 while in the offshore market China accounted for a slightly more modest 23% of installations, trailing the UK and Germany.</p>
<p>The total installed capacity of onshore wind is expected to grow at a CAGR of 9.2% and to reach 1,787 GW globally in 2030 and then 5,044 GW by 2050. Furthermore, Asia (mostly China) should continue to dominate the onshore wind power industry, with more than 50% of global installations by 2050. Offshore wind energy in Asia should grow at a CAGR of 28% during 2018-30 and reach 613 GW while the Asian onshore market is expected to grow at a 13% CAGR and reach 2,646 GW. We examine the leading Asian countries (India, Japan and China) in the sector and their growth potential.</p>
<p>We believe that, over the next decade, the Asian market will outperform in wind energy growth compared to Europe and the US. Further, the trend towards offshore wind energy development in the Asian region will start to gather steam. The growth will be still mainly driven by China, India and Japan, however, apart from those countries South Korea, Taiwan and Vietnam also demonstrate some potential to develop wind energy.</p>
<p><strong>Value Chain Analysis:</strong> We detail the value chain for wind energy highlighting the critical stages of the value chain (raw material supply, design and development services, component supply, wind turbine manufacturers, construction &amp; installation services and wind farm developers) and the leading players in those stages.</p>
<p><strong>Wind Farm Owners - </strong>By the end of 2019, the top 15 wind farm owner-operators held over 1/3 of the total 650 GW of onshore and offshore assets globally.  Chinese utilities continue to dominate the top 15 ranking of wind asset owners as China is the leader in the market. We believe that this situation will continue as wind energy installation in China is expected to grow at higher rate than other leading countries in the world.</p>
<p><strong>Original Equipment Manufacturing </strong>- OEMs usually manufacture some of the critical components such as the nacelle in-house, and blades and towers are produced either by the OEM or fabricated to the OEM's specifications by a supplier. The tower, gearbox, shafts, bearings, blades, generator, power converter and control systems accounted more than 80% of total costs.</p>
<p>Although most Asian suppliers have historically relied on turbine technologies licensed from Europe to enter the wind industry, the Asia Pacific has now become the world’s largest wind turbine manufacturing hub after a decade of development. In 2019, some 33 wind turbine manufacturers installed an estimated 22,893 wind turbines globally with a combined capacity of 63,076 MW. Of the 33 suppliers, 20 are from APAC.</p>
<p>Further, we have noticed that Chinese and Indian players have maintained their leading market position in the Asian region while international players like Siemens Gamesa and GE were able to obtain market share in the region.</p>
<p><strong>Rotors -</strong> Turbine rotor diameters have been getting larger as a result of greater pressure for turbine OEMs to reduce the LCOE by launching new turbines with larger rotors that allow for better capacity factors and an improvement in AEP (Annual Energy Production). China is the key driver behind the trend of larger wind turbine rotors as out of the 6,691 units of 2.0 MW wind turbines installed globally in 2018, nearly 80% are located in China, of which more than half the turbines installed are equipped with rotors that are 120m or larger. We see the trend of building larger and light weight rotors continuing, especially with Asian market started to develop more offshore wind projects.</p>
<p><strong>Blades -</strong> Blade core material balsa shortages have prompted turbine OEMs and blade manufacturers to switch to PET and hybrid designs with Balsa and PET. Wood Mackenzie forecasts the share of PET to increase from 20% in 2018 to more than 55% by 2023.</p>
<p><strong>Gearboxes - </strong>GWEC predicted that annual global wind gearbox demand is likely to reach 56.4 GW in 2019 and then peak in 2020 at 59.1GW driven by the installation rush in China and the US. Regionally, around 40-48% of total demand is likely to be produced in South East Asia between 2019-2023. Furthermore, around 75 GW of gearbox manufacturing capacity is available globally, thus GWEC does not expect any major bottleneck. Around 70% of the global market share is represented by three main players, Winergy, NGC and ZF. Winergy and NGC have maintained similar levels of wind turbine gear box market share over a decade while ZF was increase its market share by acquiring other leading companies around the globe.</p>
<p><strong>Towers -</strong> The tower has low technical requirements compared to other components and is thus usually sourced locally. A considerable percentage of Asian tower manufacturers ship their wind towers to North American and European countries, as production costs are lower in Asian countries and they are able to offer towers at competitive prices. Some players like Suzlon have invented lower cost hybrid tower structures which can be built at much lower cost than traditional designs.</p>
<p><strong>Services &amp; Support Opportunities</strong> – Broadly speaking, the services opportunities can be categorised into: Project development Geotechnical services Logistics support for wind farm Construction opportunities Operations and maintenance. These service providing companies generate higher margins compared to OEMs and wind turbine manufactures and as with solar power, we see a trend for OEM and component manufactures to expand services segments by introducing new technological innovation.</p>

Summary and Conclusion
What's Original?
This insight is an in-depth look into the Asian wind energy industry, covering the value chain and related companies at each key stage of the value chain. Our research includes the following:
Industry Background: This includes an in-depth analysis on the wind energy sector with an overview of wind energy, including the growth of global installed capacity wind energy and analysis of the Asian wind energy market.
We examine both global onshore and offshore wind energy and differences in installation costs, annual investments, levelised cost of electricity (LCoE) and the declining trend in installation costs.
The potential capacity level of offshore wind energy is higher than onshore, though installation costs, O&amp;M and transportation costs are currently higher for offshore which is clearly reflected in the LCoE of the two categories.
When comparing total global wind capacity against the Asian market alone, over the last decade the Asian market’s growth rate was higher than the global rate and 51% of global new capacity additions were made in the Asian region.
The majority of Asian new capacity installed in Asian market was in APAC and China remained the world’s largest onshore market accounting for 37% of total onshore installations in 2019 while in the offshore market China accounted for a slightly more modest 23% of installations, trailing the UK and Germany.
The total installed capacity of onshore wind is expected to grow at a CAGR of 9.2% and to reach 1,787 GW globally in 2030 and then 5,044 GW by 2050. Furthermore, Asia (mostly China) should continue to dominate the onshore wind power industry, with more than 50% of global installations by 2050. Offshore wind energy in Asia should grow at a CAGR of 28% during 2018-30 and reach 613 GW while the Asian onshore market is expected to grow at a 13% CAGR and reach 2,646 GW. We examine the leading Asian countries (India, Japan and China) in the sector and their growth potential.
We believe that, over the next decade, the Asian market will outperform in wind energy growth compared to Europe and the US. Further, the trend towards offshore wind energy development in the Asian region will start to gather steam. The growth will be still mainly driven by China, India and Japan, however, apart from those countries South Korea, Taiwan and Vietnam also demonstrate some potential to develop wind energy.
Value Chain Analysis: We detail the value chain for wind energy highlighting the critical stages of the value chain (raw material supply, design and development services, component supply, wind turbine manufacturers, construction &amp; installation services and wind farm developers) and the leading players in those stages.
Wind Farm Owners - By the end of 2019, the top 15 wind farm owner-operators held over 1/3 of the total 650 GW of onshore and offshore assets globally.  Chinese utilities continue to dominate the top 15 ranking of wind asset owners as China is the leader in the market. We believe that this situation will continue as wind energy installation in China is expected to grow at higher rate than other leading countries in the world.
Original Equipment Manufacturing - OEMs usually manufacture some of the critical components such as the nacelle in-house, and blades and towers are produced either by the OEM or fabricated to the OEM's specifications by a supplier. The tower, gearbox, shafts, bearings, blades, generator, power converter and control systems accounted more than 80% of total costs.
Although most Asian suppliers have historically relied on turbine technologies licensed from Europe to enter the wind industry, the Asia Pacific has now become the world’s largest wind turbine manufacturing hub after a decade of development. In 2019, some 33 wind turbine manufacturers installed an estimated 22,893 wind turbines globally with a combined capacity of 63,076 MW. Of the 33 suppliers, 20 are from APAC.
Further, we have noticed that Chinese and Indian players have maintained their leading market position in the Asian region while international players like Siemens Gamesa and GE were able to obtain market share in the region.
Rotors - Turbine rotor diameters have been getting larger as a result of greater pressure for turbine OEMs to reduce the LCOE by launching new turbines with larger rotors that allow for better capacity factors and an improvement in AEP (Annual Energy Production). China is the key driver behind the trend of larger wind turbine rotors as out of the 6,691 units of 2.0 MW wind turbines installed globally in 2018, nearly 80% are located in China, of which more than half the turbines installed are equipped with rotors that are 120m or larger. We see the trend of building larger and light weight rotors continuing, especially with Asian market started to develop more offshore wind projects.
Blades - Blade core material balsa shortages have prompted turbine OEMs and blade manufacturers to switch to PET and hybrid designs with Balsa and PET. Wood Mackenzie forecasts the share of PET to increase from 20% in 2018 to more than 55% by 2023.
Gearboxes - GWEC predicted that annual global wind gearbox demand is likely to reach 56.4 GW in 2019 and then peak in 2020 at 59.1GW driven by the installation rush in China and the US. Regionally, around 40-48% of total demand is likely to be produced in South East Asia between 2019-2023. Furthermore, around 75 GW of gearbox manufacturing capacity is available globally, thus GWEC does not expect any major bottleneck. Around 70% of the global market share is represented by three main players, Winergy, NGC and ZF. Winergy and NGC have maintained similar levels of wind turbine gear box market share over a decade while ZF was increase its market share by acquiring other leading companies around the globe.
Towers - The tower has low technical requirements compared to other components and is thus usually sourced locally. A considerable percentage of Asian tower manufacturers ship their wind towers to North American and European countries, as production costs are lower in Asian countries and they are able to offer towers at competitive prices. Some players like Suzlon have invented lower cost hybrid tower structures which can be built at much lower cost than traditional designs.
Services &amp; Support Opportunities – Broadly speaking, the services opportunities can be categorised into: Project development Geotechnical services Logistics support for wind farm Construction opportunities Operations and maintenance. These service providing companies generate higher margins compared to OEMs and wind turbine manufactures and as with solar power, we see a trend for OEM and component manufactures to expand services segments by introducing new technological innovation.

Asian Wind Energy: Efficiency and Cost Reduction in Focus as Players Eye a Post FiT Future

<h2>Tilt&nbsp;Renewables<br>For Sale&nbsp;— One Careful Owner, Great Prospects</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Almost a year to the day after Tilt Renewables (TLT) announced the sale of Snowtown 2, Infratil has announced a strategic review of TLT that may result in the sale of the whole business. Following several unsolicited enquiries, IFT has decided to test the market. Given the interest in renewable electricity assets and IFT's capital position, the chances of a sale are better than 50%, in our view. We expect IFT would require a price above NZ$5.00 to entice them to sell, and our analysis suggests that should be achievable. We have lifted our target price by +NZ$1.00 to NZ$5.00, the bottom of our estimated NZ$5.00 to NZ$6.50 sales price range as a sale is not guaranteed and TLT is an illiquid stock. Following the strong share price reaction to the strategic review, we retain our NEUTRAL rating.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/177/081/original/image_19765764721607388308371.png?1607388310" class="editor-image img-responsive" data-smartkarma-image-id="177081"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_7720301138275317656iwrmo3">
<ul>
<li><strong>Target price</strong>:&nbsp;Increased +NZ$1.00 to NZ$5.00</li>
</ul>
</div>
<div>
<h3>What could TLT sell for? Thinking about cost of equity,&nbsp;Snowtown&nbsp;2 transaction and MCY/MEL trading multiples</h3>
</div>
<div id="m_7720301138275317656i5yna">
<p>We are of the view NZ$5.00&nbsp;is a minimum. We have considered three approaches all of which support&nbsp;that as a minimum sales price.</p>
<p>Implied cost of equity not unreasonable:&nbsp;Our TLT DCF value is NZ$3.66, but that assumes nothing for development,&nbsp;assumes a cost of capital of 5.5% which includes a 0.25% liquidity discount and a risk free rate of 1.3% (vs. ~1.0% currently). To achieve an NZ$5.00 DCF value (and still assume&nbsp;nothing for development upside), you have to assume a ~5.7% cost of equity. In an environment where MCY and MEL are trading on sub-4.0% gross dividend yields, that is not a&nbsp;difficult assumption for a potential acquirer.</p>
<p>Snowtown&nbsp;2 sales multiple supports NZ$5.63&nbsp;price:&nbsp;Last year, TLT sold&nbsp;Snowtown&nbsp;2 on a EV/EBITDAF multiple of 15.9x, which is a +5% premium to the average CEN/MCY/MEL EV/EBITDA multiple at the time. Applying the same +5% premium to the current FY22 CEN/MCY/MEL EV/EBITDAF multiple, derives a TLT value of NZ$5.63.</p>
<p>Renewable electricity multiples support NZ$5.00+ price:&nbsp;100% renewable electricity generators MCY &amp; MEL are trading on record highs, aided by their attractive ESG credentials. TLT ticks the same boxes and using those businesses as&nbsp;compcos&nbsp;derives a multiple price between NZ$5.00 and NZ$6.50 (rounded to nearest 10cps).&nbsp;</p>
</div>
<div>
<h3>Who could buy it?</h3>
</div>
<div id="m_7720301138275317656izrrk9">
<p>There appears to be no shortage of buyers of renewable electricity assets in Australia, ranging from wealth funds to asset owner/operators, both Australian and further afield. Snowtown 2 was sold to investment funds, whereas the most recent transaction of listed wind developer/operator, Infigen (IFN) was sold to Spanish generator/retailer Iberdrola. IFN sold on a +64% premium to its pre-takeover premium and an Asian renewables consortium were the first bidders, highlighting the price discovery power of a sales process.&nbsp;</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&nbsp;Renewables For Sale&nbsp;— One Careful Owner, Great Prospects

NEUTRAL
Almost a year to the day after Tilt Renewables (TLT) announced the sale of Snowtown 2, Infratil has announced a strategic review of TLT that may result in the sale of the whole business. Following several unsolicited enquiries, IFT has decided to test the market. Given the interest in renewable electricity assets and IFT's capital position, the chances of a sale are better than 50%, in our view. We expect IFT would require a price above NZ$5.00 to entice them to sell, and our analysis suggests that should be achievable. We have lifted our target price by +NZ$1.00 to NZ$5.00, the bottom of our estimated NZ$5.00 to NZ$6.50 sales price range as a sale is not guaranteed and TLT is an illiquid stock. Following the strong share price reaction to the strategic review, we retain our NEUTRAL rating.


What's changed?&nbsp;



Target price:&nbsp;Increased +NZ$1.00 to NZ$5.00



What could TLT sell for? Thinking about cost of equity,&nbsp;Snowtown&nbsp;2 transaction and MCY/MEL trading multiples


We are of the view NZ$5.00&nbsp;is a minimum. We have considered three approaches all of which support&nbsp;that as a minimum sales price.
Implied cost of equity not unreasonable:&nbsp;Our TLT DCF value is NZ$3.66, but that assumes nothing for development,&nbsp;assumes a cost of capital of 5.5% which includes a 0.25% liquidity discount and a risk free rate of 1.3% (vs. ~1.0% currently). To achieve an NZ$5.00 DCF value (and still assume&nbsp;nothing for development upside), you have to assume a ~5.7% cost of equity. In an environment where MCY and MEL are trading on sub-4.0% gross dividend yields, that is not a&nbsp;difficult assumption for a potential acquirer.
Snowtown&nbsp;2 sales multiple supports NZ$5.63&nbsp;price:&nbsp;Last year, TLT sold&nbsp;Snowtown&nbsp;2 on a EV/EBITDAF multiple of 15.9x, which is a +5% premium to the average CEN/MCY/MEL EV/EBITDA multiple at the time. Applying the same +5% premium to the current FY22 CEN/MCY/MEL EV/EBITDAF multiple, derives a TLT value of NZ$5.63.
Renewable electricity multiples support NZ$5.00+ price:&nbsp;100% renewable electricity generators MCY &amp; MEL are trading on record highs, aided by their attractive ESG credentials. TLT ticks the same boxes and using those businesses as&nbsp;compcos&nbsp;derives a multiple price between NZ$5.00 and NZ$6.50 (rounded to nearest 10cps).&nbsp;


Who could buy it?


There appears to be no shortage of buyers of renewable electricity assets in Australia, ranging from wealth funds to asset owner/operators, both Australian and further afield. Snowtown 2 was sold to investment funds, whereas the most recent transaction of listed wind developer/operator, Infigen (IFN) was sold to Spanish generator/retailer Iberdrola. IFN sold on a +64% premium to its pre-takeover premium and an Asian renewables consortium were the first bidders, highlighting the price discovery power of a sales process.&nbsp;



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: For Sale — One Careful Owner, Great Prospects

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>A day after <a href="http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/IFT/364532/336831.pdf" target="_blank" rel="noopener">announcing</a> a strategic review of its 65.5% shareholding in <a href="https://www.smartkarma.com/entities/tilt-renewables-ltd" target="_blank" data-smartkarma-citation="entities:24371:1" rel="noopener">Tilt Renewables (TLT NZ)</a>, renewable energy specialist <a href="https://www.smartkarma.com/entities/infratil-ltd" target="_blank" data-smartkarma-citation="entities:596:1" rel="noopener">Infratil Ltd (IFT NZ)</a> has received a non-binding Offer, by way of Scheme, from AustralianSuper, Australia's largest superannuation fund.</p>
<p>The NZ$7.43/share Offer is a 22.2% premium to Infratil's last close, and a lifetime high.</p>
<p>The proposal includes a cash consideration of NZ$5.79/share and the distribution of 0.22 shares of <a href="https://www.smartkarma.com/entities/trustpower-ltd" target="_blank" data-smartkarma-citation="entities:11489:1" rel="noopener">Trustpower Ltd (TPW NZ)</a>, in which Infratil is a 50.76% shareholder, for each Infratil share.</p>
<p>The stakes in TPW and TLT are both worth ~NZ$1.2bn each - together accounting for 54% of Infratil's market cap.</p>
<p>The Offer values Infratil at NZ$5.4bn. In its June <a href="http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/IFT/354332/324068.pdf" target="_blank" rel="noopener">presentation booklet</a> accompanying a NZ$300mn capital raising, Infratil assessed a fair value for its investments at between NZ$5.67bn-NZ$6.3bn. That placement was done at NZ$4.76/share, an 8% discount to last close. </p>
<p>More below the fold.</p>
</div>
<div>
<p></p>
</div>


A day after announcing a strategic review of its 65.5% shareholding in Tilt Renewables (TLT NZ), renewable energy specialist Infratil Ltd (IFT NZ) has received a non-binding Offer, by way of Scheme, from AustralianSuper, Australia's largest superannuation fund.
The NZ$7.43/share Offer is a 22.2% premium to Infratil's last close, and a lifetime high.
The proposal includes a cash consideration of NZ$5.79/share and the distribution of 0.22 shares of Trustpower Ltd (TPW NZ), in which Infratil is a 50.76% shareholder, for each Infratil share.
The stakes in TPW and TLT are both worth ~NZ$1.2bn each - together accounting for 54% of Infratil's market cap.
The Offer values Infratil at NZ$5.4bn. In its June presentation booklet accompanying a NZ$300mn capital raising, Infratil assessed a fair value for its investments at between NZ$5.67bn-NZ$6.3bn. That placement was done at NZ$4.76/share, an 8% discount to last close. 
More below the fold.





Infratil (IFT NZ): Big Super's Infrastructure Grab

Tilt&nbsp;Renewables 2H21 Earnings Wind Up — 1H21 Result

NEUTRAL
Tilt Renewables (TLT) has reported 1H21 EBITDAF of A$32m, in line with expectations but down -55% on 1H20 due to the sale of Snowtown 2 in December 2019 and declining Australian wholesale electricity prices. With Dundonnell and Waipipi expected to complete commissioning in 2H21, we're forecasting a stronger 2H21 result. We have only made minor changes to our forecasts and there is no change to our NZ$4.00 target price or NEUTRAL rating.


What's changed?&nbsp;



Earnings:&nbsp;FY21/FY22/FY23 EBITDAF +A$4m/+A$0m/+A$2m to A$74m/A$103m/A$101m
Target price &amp; rating:&nbsp;Target price unchanged at NZ$4.00 and NEUTRAL rating retained



1H21 result in line with operating forecast


Overall, the 1H21 operating result was in line with expectations. The main positive was a stronger NZ sales price (up +6%), although the Australian price was softer (-10%) than expected. Operating costs and interest costs are lower than normal at present due to costs being capitalised to the two wind farm developments. Interest costs more than halved to A$5m. Significant&nbsp;fair value and FX&nbsp;movements lifted reported NPAT +A$15m to A$27m. With TLT still in its development phase, no dividend has been declared.


Earnings winding up in 2H21 as&nbsp;Dundonnell&nbsp;and&nbsp;Waipipi&nbsp;wind farms complete commissioning


Both Dundonnell and Waipipi should be fully commissioned by the end of FY21. Dundonnell's original timetable had it operational by now, but regulatory nervousness has led to a more staged approach. Increased forecast commissioning volumes have boosted our FY21 EBITDAF forecast +A$4m to A$74m — still within TLT's unchanged A$65m to A$80m guidance range. We expect FY22 EBITDAF to be between A$100m to A$110m, the first year both Dundonnell and Waipipi will contribute a full year of earnings.


No change to development pipeline,&nbsp;Snowtown&nbsp;battery and NSW wind farm&nbsp;likely next investments&nbsp;


One of TLT's attractions is its exposure to Australia and NZ decarbonising their economies, driving increased renewable electricity. That investment thesis is still valid, despite TLT not adding to its extensive 3,000MW+ development pipeline. That said, TLT indicated new development projects will be added to the pipeline in the coming 6–12 months, particularly in NZ.
The two current projects most likely to proceed to financial close in the near future are the 20MW/40MWh Snowtown battery (by 31 March 2021) and the 400MW Rye Park wind farm in NSW (mid-2021 all going well). TLT also indicated that both projects can be funded with existing cash/bank facilities, so there is no need to raise equity in the near future.​​​​​​​ TLT's NSW projects (TLT also has a 1,000MW option) received a boost with the timely announcement from the State government that it wants to support the development of 12GW of renewable capacity by 2030 by offering price floors to projects consistent with the government's strategy. It is too early to say whether TLT's projects would benefit, but the announcement is certainly helpful.



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: 2H21 Earnings Wind Up — 1H21 Result

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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Tilt Renewables Ltd (TLT NZ)

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