New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Infratil<br>One at a Time&nbsp;— Realising Platform Value</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Infratil (IFT) has announced an investment into another renewables start up, Gurin Energy. Gurin Energy will be focussed on broader Asia (ex- China), 95% owned by IFT and initially seeded with ~NZ$100m. The announcement itself is relatively minor, a modest capital commitment and outlines some ambitious plans. However, we see it as another important step towards demonstrating the idea of "platform value". IFT has long promoted the value of its platforms with renewables being one. The promoted idea is that IFT is not just a collection of assets but a collection of platforms continuing to deliver value. We (and we believe the market) has been relatively indifferent to this idea, focussing instead on the value of the individual assets.&nbsp; IFT now (part) owns three renewables companies, with a broad global reach, each with the potential to become "a new Tilt" (TLT). IFT's oldest, Longroad Energy, already owns more assets than TLT did when it was sold for NZ$3bn. All this achieved with minimal net capital contribution. The platform does indeed appear to be delivering value.&nbsp;&nbsp;</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Target price</strong>:&nbsp;Increased&nbsp;to NZ$8.75 (from NZ$8.50) primarily reflecting increased CDC and&nbsp;Longroad&nbsp;Energy valuations</li>
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<h3>Additional&nbsp;Longroad&nbsp;data and commentary increases transparency and our confidence</h3>
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<p>IFT held&nbsp;a convincing presentation&nbsp;focussed&nbsp;on its broader&nbsp;renewables&nbsp;platform. It included&nbsp;new data on its US based&nbsp;Longroad&nbsp;Energy&nbsp;(founded in 2016).&nbsp;Longroad&nbsp;now owns 1.6GW&nbsp;of generation and has a development pipeline of 7.5GW, both approximately&nbsp;2x that of TLT&nbsp;when it was sold for an&nbsp;EV consideration of NZ$3.2bn. IFT provided additional disclosure on underlying EBITDA, excluding development costs.&nbsp;While yet not mature enough to be fully comparable to TLT, we believe&nbsp;we are approaching a level of maturity for&nbsp;Longroad&nbsp;whereby the market acknowledges a value above book. With this note&nbsp;we change our valuation approach to an EBITDA multiple&nbsp;approach (from book value) which adds NZ15cps&nbsp;to our target price.</p>
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<h3>The&nbsp;renewables&nbsp;cost of capital multiplier</h3>
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<p>IFT sold TLT for 28x EV/EBITDA (FY22E), and while TLT's substantial development pipeline would have contributed, we believe the low cost of capital that acquirers apply to renewable assets was the main driver of the multiple. We estimate that IFT can develop renewable assets at ~16x EV/EBITDA in the US. If investors are wiling to pay ~19 to 20x EV/EBITDA for those assets IFT would&nbsp; double its equity value&nbsp; — that's a platform delivering value.&nbsp;</p>
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<h3>Lowered&nbsp;Trustpower&nbsp;(TPW) target price more than offset by increased CDC and&nbsp;Longroad&nbsp;valuations</h3>
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<p>We recently downgraded&nbsp;TPW to UNDERPERFORM and reduced our target price to NZ$6.90 (reducing our IFT&nbsp;target price by ~NZ30cps), however, this is more than offset by increased CDC and&nbsp;Longroad&nbsp;valuations (among others) adding&nbsp; ~NZ60cps.&nbsp;&nbsp;</p>
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Infratil One at a Time&nbsp;— Realising Platform Value

OUTPERFORM
Infratil (IFT) has announced an investment into another renewables start up, Gurin Energy. Gurin Energy will be focussed on broader Asia (ex- China), 95% owned by IFT and initially seeded with ~NZ$100m. The announcement itself is relatively minor, a modest capital commitment and outlines some ambitious plans. However, we see it as another important step towards demonstrating the idea of "platform value". IFT has long promoted the value of its platforms with renewables being one. The promoted idea is that IFT is not just a collection of assets but a collection of platforms continuing to deliver value. We (and we believe the market) has been relatively indifferent to this idea, focussing instead on the value of the individual assets.&nbsp; IFT now (part) owns three renewables companies, with a broad global reach, each with the potential to become "a new Tilt" (TLT). IFT's oldest, Longroad Energy, already owns more assets than TLT did when it was sold for NZ$3bn. All this achieved with minimal net capital contribution. The platform does indeed appear to be delivering value.&nbsp;&nbsp;


What's changed?&nbsp;



Target price:&nbsp;Increased&nbsp;to NZ$8.75 (from NZ$8.50) primarily reflecting increased CDC and&nbsp;Longroad&nbsp;Energy valuations



Additional&nbsp;Longroad&nbsp;data and commentary increases transparency and our confidence


IFT held&nbsp;a convincing presentation&nbsp;focussed&nbsp;on its broader&nbsp;renewables&nbsp;platform. It included&nbsp;new data on its US based&nbsp;Longroad&nbsp;Energy&nbsp;(founded in 2016).&nbsp;Longroad&nbsp;now owns 1.6GW&nbsp;of generation and has a development pipeline of 7.5GW, both approximately&nbsp;2x that of TLT&nbsp;when it was sold for an&nbsp;EV consideration of NZ$3.2bn. IFT provided additional disclosure on underlying EBITDA, excluding development costs.&nbsp;While yet not mature enough to be fully comparable to TLT, we believe&nbsp;we are approaching a level of maturity for&nbsp;Longroad&nbsp;whereby the market acknowledges a value above book. With this note&nbsp;we change our valuation approach to an EBITDA multiple&nbsp;approach (from book value) which adds NZ15cps&nbsp;to our target price.


The&nbsp;renewables&nbsp;cost of capital multiplier


IFT sold TLT for 28x EV/EBITDA (FY22E), and while TLT's substantial development pipeline would have contributed, we believe the low cost of capital that acquirers apply to renewable assets was the main driver of the multiple. We estimate that IFT can develop renewable assets at ~16x EV/EBITDA in the US. If investors are wiling to pay ~19 to 20x EV/EBITDA for those assets IFT would&nbsp; double its equity value&nbsp; — that's a platform delivering value.&nbsp;


Lowered&nbsp;Trustpower&nbsp;(TPW) target price more than offset by increased CDC and&nbsp;Longroad&nbsp;valuations


We recently downgraded&nbsp;TPW to UNDERPERFORM and reduced our target price to NZ$6.90 (reducing our IFT&nbsp;target price by ~NZ30cps), however, this is more than offset by increased CDC and&nbsp;Longroad&nbsp;valuations (among others) adding&nbsp; ~NZ60cps.&nbsp;&nbsp;


Infratil: One at a Time — Realising Platform Value

Infratil Ltd

Infratil: One at a Time — Realising Platform Value