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<br>Tilting Up, Up and Away</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Infratil's&nbsp;strategic review has concluded with the expected sale of Tilt&nbsp;Renewables&nbsp;(TLT), but for an eye-watering price of NZ$7.80/share. The sales price implies an FY22 EV/EBITDAF TLT multiple of 27.7x and highlights the current attractiveness of assets such as TLT. The price is even more impressive in light of recent interest rate increases and ongoing softness in Australian wholesale electricity prices. We have increased our target price to the transaction price of NZ$7.80/share and we retain our NEUTRAL rating.</p>
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<h3>Great deal for TLT shareholders</h3>
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<p>The deal values TLT at NZ$7.80/share, ~2x the December 2020 pre-strategic review price. The implied FY22 EV/EBITDAF 27.7x is eye-wateringly&nbsp;high and highlights both the attractiveness of the assets and the material decline in the cost of capital. The NZ$7.80 share price implies a 3.4% WACC on our forecasts (although we&nbsp;place little&nbsp;value on development options).</p>
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<h3>Business to be split into Australian and New&nbsp;Zealand&nbsp;assets</h3>
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<p>TLT will be split into two businesses post-sale, with Mercury (MCY) owning the NZ assets and Powering Australian&nbsp;Renewables&nbsp;(PowAR) owning the Australian assets. The deal price has been driven by the Australian business and the implied FY22 EV/EBITDAF multiple is 37.4x for the Australian assets vs. 15.4x for the NZ assets.&nbsp;PowAR&nbsp;is a consortium of QIC (a Queensland Government investment fund), Future Fund (Australia's sovereign wealth fund) and AGL.</p>
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<p>The usual conditions are in place for the deal, including OIO and FIRB approval (although this should not be an issue given the ending owners of each business are local), shareholder approval (IFT and MCY indicated they will vote yes, together they own 85% of TLT) and High Court approval in NZ. TLT directors are recommending the deal to shareholders, subject to the independent valuation range including the NZ$7.80 deal price (it is hard to see how it won't). The transaction is being completed under a Scheme Implementation Agreement. The shareholder vote is likely to be four months away, with the Scheme implemented in&nbsp;~five&nbsp;months.</p>
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<h3>Minor forecast changes</h3>
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<p>We have updated our forecasts for recent production information, latest wholesale electricity price information and exchange rates. The changes are very minor (less than A$1m per annum). Our new target price of NZ$7.80 reflects the transaction price.</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>
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Tilt Renewables Tilting Up, Up and Away

NEUTRAL
Infratil's&nbsp;strategic review has concluded with the expected sale of Tilt&nbsp;Renewables&nbsp;(TLT), but for an eye-watering price of NZ$7.80/share. The sales price implies an FY22 EV/EBITDAF TLT multiple of 27.7x and highlights the current attractiveness of assets such as TLT. The price is even more impressive in light of recent interest rate increases and ongoing softness in Australian wholesale electricity prices. We have increased our target price to the transaction price of NZ$7.80/share and we retain our NEUTRAL rating.


Great deal for TLT shareholders


The deal values TLT at NZ$7.80/share, ~2x the December 2020 pre-strategic review price. The implied FY22 EV/EBITDAF 27.7x is eye-wateringly&nbsp;high and highlights both the attractiveness of the assets and the material decline in the cost of capital. The NZ$7.80 share price implies a 3.4% WACC on our forecasts (although we&nbsp;place little&nbsp;value on development options).


Business to be split into Australian and New&nbsp;Zealand&nbsp;assets


TLT will be split into two businesses post-sale, with Mercury (MCY) owning the NZ assets and Powering Australian&nbsp;Renewables&nbsp;(PowAR) owning the Australian assets. The deal price has been driven by the Australian business and the implied FY22 EV/EBITDAF multiple is 37.4x for the Australian assets vs. 15.4x for the NZ assets.&nbsp;PowAR&nbsp;is a consortium of QIC (a Queensland Government investment fund), Future Fund (Australia's sovereign wealth fund) and AGL.


The usual conditions are in place for the deal, including OIO and FIRB approval (although this should not be an issue given the ending owners of each business are local), shareholder approval (IFT and MCY indicated they will vote yes, together they own 85% of TLT) and High Court approval in NZ. TLT directors are recommending the deal to shareholders, subject to the independent valuation range including the NZ$7.80 deal price (it is hard to see how it won't). The transaction is being completed under a Scheme Implementation Agreement. The shareholder vote is likely to be four months away, with the Scheme implemented in&nbsp;~five&nbsp;months.


Minor forecast changes


We have updated our forecasts for recent production information, latest wholesale electricity price information and exchange rates. The changes are very minor (less than A$1m per annum). Our new target price of NZ$7.80 reflects the transaction price.



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 Ltd

Tilt Renewables: Tilting Up, Up and Away