Utilities Sector

• On 13 November, Kansai Electric Power (9503 JP) announced an equity offering to raise capital for capex expenditures over the next several years. It is significantly dilutive.
• The shares responded by falling 23% to 8-months lows of ¥1,850 last Thursday and Friday. That puts the stock at the same forward PER post-offering as it was pre-offering. 
• That’s probably not an awful place to own now that the stock will have been slightly de-risked/de-levered. 

• Since the US$3.5 billion primary/secondary offering announcement, Kansai Electric Power (9503 JP)’s shares have been down 20.6% from the undisturbed price of JPY2,397 per share (13 November).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, KEPCO’s shares have followed the pattern of previous large placements.
• The offering will likely be priced on 26 November. The average large Japanese placement tends to generate positive returns.

• GQG acknowledges the seriousness of the charges, but maintains its confidence in the Adani Group companies.
• GQG sees a distinction between the allegations against the individuals and the operational strength of the businesses.
• The firm believes that the fundamentals of the companies remain strong. GQG will continue to monitor the situation closely.

• CRRC Corp Ltd H (1766 HK) recent innovation on carbon-fibre subway trains for commercial operation has displayed their capability to decarbonize transport.
• Free cash flow improved from RMB -11 billion last year to now -1.4 billion and 28% of its market caps are in cash. 
• CRRC used to trade at as high as 40x PER and 67x price to cash flow and currently is trading at 10x PER and 4x price to cash flow. 

• In the US, existing home sales rose 3.4% m-o-m in October (2.9% e / -1.3% revised p) to an annualised 3.96 mn units.
• That said, existing home sales grew at the slowest pace since late 2010, amid rising mortgage costs.
• Separately, the Conference Board leading index fell 0.4% (-0.3% e / -0.3% revised p) to 99.5 in October 2024. 

• Kansai Electric Power (9503 JP) plans to raise up to US$3.5bn (including over-allocation) to partly fund its investment plans.
• In our earlier note, we talked about the placement and ran the deal through our ECM framework.
• In this note, we talk about the updates and share price performance since then.

• The US indictment of key executives is a material credit negative for the Adani Group, with the allegations being more serious than those from Hindenburg Research’s short-sell report in January 2023.
• In the near term, the US indictment is likely to constrain the group’s access to financing, particularly in the offshore market.
• We note that the Justice Department’s charges are directed at the individual executives, not at Adani Green Energy or other group entities.

• Adani Green Energy Limited (AGEL) is one of the world’s largest developers and operators of solar and wind power.
• The company’s assets are geographically diversified across India, with total locked-in capacity of 20.4 GW (of which 10.9 GW was operational as of June 2024).
• AGEL is listed on the Bombay Stock Exchange and National Stock Exchange of India. 

• Following 3Q24 results, we update our outlook for Spruce, a leading owner-operator of residential solar power purchase agreements (PPAs) and solar lease agreements (SLAs).
• Spruce grows through the acquisition of mature portfolios.
• Its portfolio has expanded at a 29% CAGR since 2018 and Spruce now owns the cash flow from approximately 75,000 home solar assets and contracts.

• In today’s Morning Views publication we comment on developments of the following high yield issuers: Adani Green Energy, Yankuang Energy
• In the US, treasuries edged higher yesterday, with yields declining 2-4 bps across the curve on possible dip buying and despite a large slate of corporate bond issuances.
• The yield on the 2Y UST fell 3 bps to 4.28%, while the 10Y declined 3 bps to 4.41%. Equities rebounded from last week’s losses, with the S&P 500 and Nasdaq up 0.4% and 0.6%, respectively.

• NTPC Green Energy Ltd (2214556D IN) is looking to raise around US$1.2bn in its upcoming India IPO.
• NTPC Green Energy Limited (NGEL) is a renewable energy public sector enterprise and a wholly owned subsidiary of NTPC Limited, a Maharatna central public sector enterprise (PSU).
• In an earlier note, we looked at the firm’s past performance. In this note, we look at its RHP updates, undertake a peer comparison and discuss our thoughts on valuation.

• Aequitas Research’s weekly update on the IPOs, placements, lockup expiry and other ECM linked events that were covered by the team over the past week.
• On the IPOs front, the usual year end deal flow appears to be picking up with US elections now out of the way.
• On the placements front, Kansai Electric Power (9503 JP) launched a large primary offering, while Varun Beverages (VBL IN) did the same in India.

• Core shareholders holding 60.86% accepted KKR’s €8.30/share offer, triggering a mandatory tender for minorities. Greenvolt’s revised offer price (€8.3107/share) represented a 95.5% IPO premium, but faced critiques for modest value. 
• By October 25, KKR held 97.64% of Greenvolt’s share capital, surpassing the 90% threshold for a squeeze-out and delisting.
• The delisting is expected by late 2024 or early 2025, following squeeze-out completion. Minority shareholders will be compelled to sell, receiving €8.3107/share. Gross spread is 0.8%. Long.

• Kontrol Technologies reported Q3 financial results yesterday after market close that were softer than expected.
• Revenue came in at $1.7M vs. our expected $2.0M.
• Subsequent to the quarter, KNR signed an LOI to acquire an Ontario-based business doing $525K in EBITDA.

• Cumulative Q3 FY12/24 saw YoY declines in revenue and profits, with Recurring business revenue down 2.7% YoY.
• The company revised earnings projections downward due to weak Spot business performance, maintaining net income forecast via asset sales.
• Recurring business gross profit grew 8.2% YoY, with significant growth in overseas Power Production and O&M business segments.

• SPRU announced 3Q24 results yesterday. Spruce Power is a leading owner-operator of residential solar power purchase agreements (PPAs) and solar lease agreements (SLAs).
• Spruce grows through the acquisition of mature portfolios. Its portfolio has expanded at a 29% CAGR since 2018 and Spruce now owns the cash flow from approximately 75,000 home solar assets and contracts.
• Spruce offers a “Power-as-a-Service” business model and believes its own in-house technology-driven solar servicing platform is the most comprehensive on the market and hard to replicate. 

• Renewable Japan (9522 JP) has recommended a Tokyu Fudosan Holdings (3289 JP)-sponsored MBO at JPY1,250 per share, a 132.3% premium to the last close.
• The high takeover premium reflects the 55% YTD decline in the share price. While the timing is opportunistic, the offer is attractive compared to peer multiples. 
• The irrevocables and low required minority acceptance rate ensure that this is a done deal. The tender runs from 15 November to 8 January 2025 (34 business days).

• The spin-off of the value-added business (VAS) of China Gas Holdings (384 HK) may add HK$0.22-0.83/share to the stock price, or 3.4-12.8%, based on our initial assessment.
• VAS generated an operating profit of HK$1.58bn in FY24, up by 5.7% YoY. It is significant to China Gas as this accounted for 23.5% of its total segment profit.
• The share price has not reacted much to the news because weak Chinese equity market and uncertainties on the upcoming 1H FY25 result. Once cleared, we see good upside.

• Kansai Electric Power (9503 JP) plans to raise up to US$3.5bn (including over-allocation) to partly fund its investment plans.
• This will be a large deal for the stock to digest and doesn’t appear to have been particularly well flagged.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• The past few years, large equity offerings have either been IPOs or secondary offerings (without dilution). Today we get a big dilutive secondary offering from Kansai Electric Power (9503 JP). 
• This is ~223mm shares or roughly ¥530bn against a current market cap of ¥2.1+trln. A 25% increase in share count. It is quite dilutive, but the stock is not rich.
• Because dilutive, not overly-well-flagged, and mostly retail, this could get hammered. The div is not high enough to make it attractive, so one has to appreciate high earnings yield.

• Kansai Electric Power (9503 JP) is looking to raise up to US$3.5bn via a primary offering and a sale of Treasury shares. Pricing date is between 26-29 November.
• Kansai Electric Power (9503 JP) is among the better performing stocks from the Electric Utilities industry and trades at higher valuations compared to its peers.
• There will be a fair bit of passive buying with around 29% of the offering being bought at the time of settlement of the shares.

• Kansai Electric Power (9503 JP) has announced primary and secondary offerings of up to 223.1 million shares (including overallotment) and a third-party allotment of 29.1 million shares.
• JPY239.9 billion of proceeds will be used to improve energy efficiency and decarbonisation, while other funds will be used for data centres, renewable energy and overseas investments.
• Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will fall between 26 and 29 November (likely 26 November).

• NTPC Green Energy Ltd (2214556D IN) is looking to raise INR 100bn (US$1.19bn) in its IPO. That will value the company at INR 910bn (US$10.8bn) at the top end. 
• The anchor allocations will be completed early next week, and the stock is expected to start trading on 27 November.
• The stock will not get Fast Entry to global indices with the earliest inclusion scheduled for June 2025. So, limited passive buying in the medium-term.

• Constellation Brands delivered mixed results in its Q2 Fiscal Year 2025 earnings, reflecting resilience amid a challenging macroeconomic environment.
• The performance of the company’s segments varied, with strong growth in the Beer Business offset by headwinds in the Wine and Spirits division.
• Starting on a positive note, Constellation Brands’ Beer Business continued its streak as a sector leader, demonstrating robust financial performance with net sales and operating income growing by nearly 6% and 13%, respectively.

• Unisuper is looking to raise A$500m (US$333m) via trimming a portion of its stake in APA Group (APA AU).
• The deal will be a large one to digest at 24 days of the stock’s three month ADV. 
• In this note, we’ll run the deal through our ECM framework and comment on deal dynamics.

• Veolia is an attractive investment opportunity in waste and water management sectors
• Currently trading at a low multiple with a 4.5% dividend yield, expected to provide a mid-teens IRR
• Factors like recent stock sell-offs, potential cyclical recovery in Europe, and USD weakening could create an opportunistic time to invest

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.