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>Tilt&nbsp;Renewables<br>For Sale&nbsp;— One Careful Owner, Great Prospects</h2>
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<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>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Target price</strong>:&nbsp;Increased +NZ$1.00 to NZ$5.00</li>
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<h3>What could TLT sell for? Thinking about cost of equity,&nbsp;Snowtown&nbsp;2 transaction and MCY/MEL trading multiples</h3>
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<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>
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<h3>Who could buy it?</h3>
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<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>
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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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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

Tilt Renewables Ltd

Tilt Renewables: For Sale — One Careful Owner, Great Prospects