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 Renewables</h2>
It’s a White<a target="_blank"></a>&nbsp;Christmas
In another example that the market for quality infrastructure is white hot, Tilt Renewables (TLT) has sold its Snowtown 2 wind farm for A$1,073m. After transaction costs, the sale price is ~+A$350m (~+NZ$0.78/share) more than our DCF valuation. The materially higher sale price has resulted in us lifting our target price +70cps to NZ$3.70.
What’s changed?
<ul>
<li>Earnings: FY20 EBITDAF lowered -A$12m to A$123m</li>
<li>Target Price: Increased +70cps to NZ$3.70</li>
<li>Rating: OUTPERFORM rating retained</li>
</ul>
Snowtown II sale provides an early white Christmas
TLT has sold its 270MW Snowtown 2 (ST2) wind farm to Palisade Investment Partners and First State Super, with completion expected before the end of 2019. The deal metrics are impressive. The headline sales price of A$1,073m equates to almost A$4m/MW. That compares to development costs typically less than A$2m/MW. The reason for the high sales price is the very attractive offtake agreement with Origin Energy. TLT is selling the equity in the ST2 operations and net proceeds (after transaction costs) are expected to be A$455m (~NZ$1.00/share).
Big Christmas present for TLT (and its owners)
TLT has provided a big Christmas present to its owners. We estimate that TLT will have surplus capital of ~A$565m (~NZ$1.25/share) following the completion of the transaction. In addition to the net sale proceeds, TLT is effectively ungeared. As at 30 September, net debt (excluding restricted cash and leases) was A$615m–A$611m which was attached to ST2 following the project financing. Assuming (conservatively) a net debt to EBITDAF ratio of 2.5x on the earnings of the current operating wind farms and after adjusting for the unfunded portion of Waipipi, we estimate that TLT could comfortably borrow a further A$110m. When added to the net sale proceeds from ST2 of A$455m that totals A$565m.
The question becomes: how much cash will TLT’s majority owner, Infratil (IFT) ask for? Whilst TLT has a significant development pipeline, its near-term focus is building two wind farms. It has no significant immediate need for cash (that we’re aware of). It is conceivable that IFT could ask for upwards of A$500m (~NZ$1.10/share).
Future earnings downgrades
A little over 50% of TLT’s EBITDAF came from ST2 (TLT has indicated ~A$68m per annum). The sale will make a significant dent in TLT’s earnings outlook and it has downgraded its FY20 EBITDAF guidance range -$A10m to A$118m–A$122m. We have made similar adjustments to our forecasts.
With the ST2 sales price materially ahead of our ST2 DCF value, we have upgraded our target price +70cps to NZ$3.70. Whilst the share price rallied +22cps on the news of the ST2 sale, we believe there is more to go, particularly given the surplus capital in TLT and we reiterate our OUTPERFORM rating.&nbsp;
<div class="content-highlight">
Investment View
Our rating is OUTPERFORM. TLT offers exposure to renewable energy developments, particularly in Australia. It has a strong pipeline and excellent development track record. In addition, the low interest rate environment is attractive for low cost funding.&nbsp;
</div>
Andrew Harvey-Green andrew.harvey-green@forsythbarr.co.nz +64 4 495 8185

Tilt Renewables
It’s a White&nbsp;Christmas
In another example that the market for quality infrastructure is white hot, Tilt Renewables (TLT) has sold its Snowtown 2 wind farm for A$1,073m. After transaction costs, the sale price is ~+A$350m (~+NZ$0.78/share) more than our DCF valuation. The materially higher sale price has resulted in us lifting our target price +70cps to NZ$3.70.
What’s changed?

Earnings: FY20 EBITDAF lowered -A$12m to A$123m
Target Price: Increased +70cps to NZ$3.70
Rating: OUTPERFORM rating retained

Snowtown II sale provides an early white Christmas
TLT has sold its 270MW Snowtown 2 (ST2) wind farm to Palisade Investment Partners and First State Super, with completion expected before the end of 2019. The deal metrics are impressive. The headline sales price of A$1,073m equates to almost A$4m/MW. That compares to development costs typically less than A$2m/MW. The reason for the high sales price is the very attractive offtake agreement with Origin Energy. TLT is selling the equity in the ST2 operations and net proceeds (after transaction costs) are expected to be A$455m (~NZ$1.00/share).
Big Christmas present for TLT (and its owners)
TLT has provided a big Christmas present to its owners. We estimate that TLT will have surplus capital of ~A$565m (~NZ$1.25/share) following the completion of the transaction. In addition to the net sale proceeds, TLT is effectively ungeared. As at 30 September, net debt (excluding restricted cash and leases) was A$615m–A$611m which was attached to ST2 following the project financing. Assuming (conservatively) a net debt to EBITDAF ratio of 2.5x on the earnings of the current operating wind farms and after adjusting for the unfunded portion of Waipipi, we estimate that TLT could comfortably borrow a further A$110m. When added to the net sale proceeds from ST2 of A$455m that totals A$565m.
The question becomes: how much cash will TLT’s majority owner, Infratil (IFT) ask for? Whilst TLT has a significant development pipeline, its near-term focus is building two wind farms. It has no significant immediate need for cash (that we’re aware of). It is conceivable that IFT could ask for upwards of A$500m (~NZ$1.10/share).
Future earnings downgrades
A little over 50% of TLT’s EBITDAF came from ST2 (TLT has indicated ~A$68m per annum). The sale will make a significant dent in TLT’s earnings outlook and it has downgraded its FY20 EBITDAF guidance range -$A10m to A$118m–A$122m. We have made similar adjustments to our forecasts.
With the ST2 sales price materially ahead of our ST2 DCF value, we have upgraded our target price +70cps to NZ$3.70. Whilst the share price rallied +22cps on the news of the ST2 sale, we believe there is more to go, particularly given the surplus capital in TLT and we reiterate our OUTPERFORM rating.&nbsp;

Investment View
Our rating is OUTPERFORM. TLT offers exposure to renewable energy developments, particularly in Australia. It has a strong pipeline and excellent development track record. In addition, the low interest rate environment is attractive for low cost funding.&nbsp;

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

Tilt Renewables: It’s a White Christmas

Tilt Renewables Ltd

Tilt Renewables: It’s a White Christmas