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>
<p><strong>Wholesale Pressure Offsets&nbsp;COVID&nbsp;Immunity</strong></p>
<p><strong>OUTPERFORM</strong></p>
<p>In this Tilt Renewables (TLT) update, the lower outlook for electricity prices has pulled back our long-term forecasts such that we have lowered our target price -20cps (-5.4%) to NZ$3.50. Nevertheless, we still like TLT's investment case. It is largely immune to the effects of COVID-19, has a strong development track record, a strong development pipeline, and is returning ~NZ$0.59/share in the coming months due to the successful sale of Snowtown 2. Our rating is OUTPERFORM.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/734/original/image_23120475821588292014671.png?1588292016" class="editor-image img-responsive" data-smartkarma-image-id="130734"></figure>
<p><strong>Falling wholesale electricity prices not helpful, but&nbsp;LGC&nbsp;prices holding up well</strong></p>
<div id="m_-6352131253615170901iia3k-2-2-2">
<p>Spot wholesale and future electricity prices on both sides of the Tasman have been under pressure in recent months. Whilst most of TLT's generation for the next decade will be sold at a fixed price (~75% in Australia, 100% in New Zealand), it still has some spot price exposure — primarily Snowtown 1 and Salt Creek LGCs. Future Australian electricity prices are ~A$55/MWh, a record low. Whilst these futures prices suggest the market is oversupplied, in our view they are too low vs. the costs of building new firmed electricity and will, therefore, rise in time. In contrast to wholesale electricity prices, renewable energy certificate prices (LGCs) have held up well, with 2021 and 2022 contracts at, or close to, 12 month highs.</p>
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<p><strong>TLT&nbsp;largely immune to&nbsp;COVID-19</strong></p>
<div id="m_-6352131253615170901i9n74-2-2-2">
<p>Notwithstanding the falls in wholesale electricity prices,&nbsp;TLT&nbsp;is largely immune to&nbsp;COVID-19. It has very low counter-party risk and sells all the electricity it generates. i.e. it is not exposed to&nbsp;COVID-19 related falls in electricity demand. In addition, low interest rates&nbsp;help&nbsp;reduce the cost of funding future projects.&nbsp;TLT&nbsp;is a very low risk business with a strong track record.</p>
</div>
<p><strong>Cash heading back to shareholders in near future — more&nbsp;Snowtown&nbsp;2 type deals possible in the future</strong></p>
<div id="m_-6352131253615170901inown-2-2-2">
<p>As expected, TLT has announced it is returning ~A$260m (~A$0.55/share, ~NZ$0.59/share) to shareholders. The timetable is subject to court timetables, but TLT is hopeful capital return should be with shareholders before the end of the current quarter. The cash came from the sale of TLT's Snowtown 2 wind farm in December 2019 and subject to market conditions on completion, it is possible TLT could repeat the process with the under construction Dundonnell or Waipipi wind farms.</p>
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<p><strong>Forecast changes reflect actual volumes and pricing outlook</strong></p>
<div id="m_-6352131253615170901ij4lt2-2-2-2">
<p>We have lowered our FY20 EBITDAF forecast -6% to A$117m due to the low wholesale electricity prices in 4Q20 and slightly lower than assumed generation volumes. Our new forecast is consistent with TLT guidance. TLT is reporting its FY20 result on Monday 25 May. We have also dropped our FY21/FY22 EBITDAF forecasts -4%/-8% due to the lower wholesale electricity price outlook in Australia. Our long-term Australian wholesale electricity price assumption is ~A$65/MWh, down from ~A$73/MWh. The material fall in the wholesale electricity price outlook is the driver of the -20cps (-5.4%) cut in our target price to NZ$3.50.</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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Tilt Renewables
Wholesale Pressure Offsets&nbsp;COVID&nbsp;Immunity
OUTPERFORM
In this Tilt Renewables (TLT) update, the lower outlook for electricity prices has pulled back our long-term forecasts such that we have lowered our target price -20cps (-5.4%) to NZ$3.50. Nevertheless, we still like TLT's investment case. It is largely immune to the effects of COVID-19, has a strong development track record, a strong development pipeline, and is returning ~NZ$0.59/share in the coming months due to the successful sale of Snowtown 2. Our rating is OUTPERFORM.

Falling wholesale electricity prices not helpful, but&nbsp;LGC&nbsp;prices holding up well

Spot wholesale and future electricity prices on both sides of the Tasman have been under pressure in recent months. Whilst most of TLT's generation for the next decade will be sold at a fixed price (~75% in Australia, 100% in New Zealand), it still has some spot price exposure — primarily Snowtown 1 and Salt Creek LGCs. Future Australian electricity prices are ~A$55/MWh, a record low. Whilst these futures prices suggest the market is oversupplied, in our view they are too low vs. the costs of building new firmed electricity and will, therefore, rise in time. In contrast to wholesale electricity prices, renewable energy certificate prices (LGCs) have held up well, with 2021 and 2022 contracts at, or close to, 12 month highs.

TLT&nbsp;largely immune to&nbsp;COVID-19

Notwithstanding the falls in wholesale electricity prices,&nbsp;TLT&nbsp;is largely immune to&nbsp;COVID-19. It has very low counter-party risk and sells all the electricity it generates. i.e. it is not exposed to&nbsp;COVID-19 related falls in electricity demand. In addition, low interest rates&nbsp;help&nbsp;reduce the cost of funding future projects.&nbsp;TLT&nbsp;is a very low risk business with a strong track record.

Cash heading back to shareholders in near future — more&nbsp;Snowtown&nbsp;2 type deals possible in the future

As expected, TLT has announced it is returning ~A$260m (~A$0.55/share, ~NZ$0.59/share) to shareholders. The timetable is subject to court timetables, but TLT is hopeful capital return should be with shareholders before the end of the current quarter. The cash came from the sale of TLT's Snowtown 2 wind farm in December 2019 and subject to market conditions on completion, it is possible TLT could repeat the process with the under construction Dundonnell or Waipipi wind farms.

Forecast changes reflect actual volumes and pricing outlook

We have lowered our FY20 EBITDAF forecast -6% to A$117m due to the low wholesale electricity prices in 4Q20 and slightly lower than assumed generation volumes. Our new forecast is consistent with TLT guidance. TLT is reporting its FY20 result on Monday 25 May. We have also dropped our FY21/FY22 EBITDAF forecasts -4%/-8% due to the lower wholesale electricity price outlook in Australia. Our long-term Australian wholesale electricity price assumption is ~A$65/MWh, down from ~A$73/MWh. The material fall in the wholesale electricity price outlook is the driver of the -20cps (-5.4%) cut in our target price to NZ$3.50.




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





Tilt Renewables: Wholesale Pressure Offsets COVID Immunity

Tilt Renewables Ltd

Tilt Renewables: Wholesale Pressure Offsets COVID Immunity