Pacific Energy (PEA)

Transcription

1 01 December 2017 INTERNAL ONLY RECOMMENDATIONS Rating BUY Risk High Price Target $0.69 Share Price $0.58 SNAPSHOT Monthly Turnover $5.6mn Market Cap $223mn Shares Issued 371.8mn 52-Week High $ Week Low $0.52 Sector Utilities BUSINESS DESCRIPTION Pacific Energy builds, owns, operates and maintains remote power stations and generation-related infrastructure, primarily serving the mining sector. The vast majority of its assets are gas, diesel and dual fuel generators, with hydro facilities making up the remainder. The company is now looking to expand its activities into Africa and the renewable energy space. 12-MONTH PRICE & VOLUME Pacific Energy (PEA) COMPANY REPORT You win some, you lose some Newmont tender unsuccessful: PEA has advised that its tender for two new gas-fired power stations at the Tanami mine has been unsuccessful. PEA is the current power supplier to this mine, with this contract accounting for around 15% of its revenue in FY17. The contract is currently due to end in December 2018, although we believe that delays in the approval and construction process of the plant and associated pipeline may extend this date for up to 12 months. Guidance reaffirmed: PEA reaffirmed FY18 guidance for EBITDA of $43-44m, in line with our forecast. This is based on existing contracts, with any expansions of existing contracts adding to earnings. Current contracted capacity stands at 293MW, with 262MW operating and 31MW to be installed over the next few months. African update: In Tanzania, the Government recently introduced new laws to tighten control over mining companies. This has increased the risk around whether the project will proceed and thus whether the power contract will still be awarded to PEA. We understand that the asset owner is hopeful the situation can be resolved within a few months. This seems to be in line with the view of other mining companies in the country (eg. Kibaran Resources noted its positive meeting with the Government). In Mali, PEA s contract with Avnel Gold is still subject to project funding being received. This process has been delayed as Avnel was acquired by Endeavour Gold, which is conducting a revised mine study, the timeline for completion of which is unknown. PEA is also understood to be close to securing another smaller contract in Africa in the next month or two. Forecast changes: We have conservatively assumed a December 2018 finish date for the Newmont contract and reduced revenue by 7% in FY19 and 14% in FY20, resulting in EPS and DPS declines of 13% and 27% respectively. We have maintained a payout ratio of 55-62%, in line with previous years. Our new valuation and target price is $0.69 (from $0.80). RESEARCH ANALYST Luke Macnab, CFA lmacnab@baillieuholst.com.au Nicolas Burgess, CFA nburgess@baillieuholst.com.au Disclosure The author owns no shares in PEA. Baillieu Holst Ltd acts in respect of the onmarket buy-back for Pacific Energy and will earn fees in relation to that activity. Baillieu Holst is prohibited from giving sellers advice with respect to Pacific Energy. Investment view: Whilst disappointing, this announcement was not a huge surprise and seemingly already factored into the share price. The priority for PEA is to back-fill the lost capacity and revenue with new contract wins and expansions, ideally before its Newmont contract ceases in months. PEA continues to have a strong pipeline and we remain optimistic about its prospects in Africa we expect one or two projects to be announced over the next few months. BUY maintained. INVESTMENT SUMMARY Year End: 30 June 2016A 2017A 2018E 2019E 2020E Revenue $mn EBITDA $mn EBIT $mn Reported Profit $mn Adjusted Profit $mn EPS (Reported) EPS (Adjusted) EPS Growth % PER (Reported) x PER (Adjusted) x Dividend Yield % Franking % Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 1

2 Financial summary PACIFIC ENERGY Code: PEA Rating: BUY Analyst: Luke Macnab Price Target: $0.69 Date: 28 November, 2017 Upside/downside: 20% Share Price: $0.58 Valuation: $0.69 Market Capitalisation: $215m Valuation method: DCF/Multiple Financial Year End: June Risk: High PROFIT & LOSS (A$m) FY16A FY17A FY18E FY19E FY20E EARNINGS FY16A FY17A FY18E FY19E FY20E Operating revenue EPS - (cps) COGS EPS Growth - 15% 9% 11% 1% -11% Gross profit EPS - Reported (cps) Expenses Diluted shares (m) EBITDA DPS (cps) Depreciation Dividend Yield 4.3% 4.3% 4.8% 4.8% 4.8% EBITA Payout Ratio 64% 56% 55% 55% 62% Amortisation Franking 100% 100% 100% 100% 100% EBIT Net Interest expense VALUATION FY16A FY17A FY18E FY19E FY20E Minorities P/E - (x) PBT EV/EBIT (x) Tax EV/EBITA (x) NPAT EV/EBITDA (x) NPATA Price/Book (x) Price/NTA (x) Significant items (net of tax) Price/FCF Reported profit GROWTH FY16A FY17A FY18E FY19E FY20E BALANCE SHEET (A$m) FY16A FY17A FY18E FY19E FY20E Revenue growth 12% 11% 6% 1% -2% Assets COGS growth 12% 25% -4% 1% -2% Cash Expenses growth -7% 7% 12% 4% 3% Receivables EBITDA growth 19% 11% 6% 0% -3% PPE PBT growth 22% 12% 7% 1% -5% Goodwill & Intangibles NPAT growth 21% 15% 14% 1% -11% Investments Reported NPAT growth 32% 6% 14% 1% -11% Other assets Total Assets MARGINS & RETURNS FY16A FY17A FY18E FY19E FY20E Liabilities EBITDA Margin 71.6% 71.4% 71.3% 70.7% 69.6% Payables EBITA Margin 48.4% 46.0% 45.7% 44.6% 42.2% Debt NPBT Margin 40.8% 41.1% 41.4% 41.5% 40.2% Provisions ROIC 10.7% 10.6% 11.2% 11.2% 10.5% Tax payable ROE 10.8% 11.8% 12.6% 12.1% 10.3% Deferred Revenue ROA 13.3% 13.4% 14.0% 13.6% 12.6% Other liabilities Effective Tax Rate 30.0% 30.0% 30.0% 30.0% 30.0% Total Liabilities Equity GEARING FY16A FY17A FY18E FY19E FY20E Share capital Net Debt Retained earnings Enterprise value Other equity Net Debt/EV (%) 14.5% 11.4% 8.0% 3.4% -0.5% Total shareholders equity Net Debt/EBITDA (x) EBITDA/Net Interest (x) BV per share (cps) NTA per share (cps) SEGMENT REVENUES (A$m) FY16A FY17A FY18E FY19E FY20E Kalgoorlie Power Systems CASH FLOW (A$m) FY16A FY17A FY18E FY19E FY20E Other Cash at Start Cash from operations Capex Free cash flow Cash flow from investing Cash flow from financing Cash at end Free cash flow per share (cps) GOCF / EBITDA 101% 101% 108% 108% 108% FCF / cash NPAT -45% 93% 94% 110% 110% Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 2

3 You win some, you lose some Newmont switching to gas: Newmont Mining has concluded its tender for two new gasfired power stations at its Tanami mine, 540km northwest of Alice Springs. PEA participated in this process, but was unsuccessful. PEA has been the power provider since 2003, via a diesel-fuelled power station with a capacity of 46MW, which is now being replaced. This contract accounts for around 15% of PEA s FY17 revenue. FIG.1: PEA FY17 REVENUE SPLIT 12% AngloGold 21% 4% Newmont 6% Regis Saracen 6% Sandfire 15% St Barbara 8% Metals X Millennium 14% 14% Other FIG.2: PEA CONTRACTED CAPACITY FY14 FY15 FY16 FY17 CURR EX-NEM* Source: PEA * Ex-Newmont Source: PEA Contract likely to extend a little: PEA has been providing power to Tanami on the basis of a one-year rolling contract for the past few years and recently rolled it forward to the end of December Whilst we believe this is on the optimistic side for completion of the new gas power plant and associated 450km pipeline, any time extension past this date is likely to be in months rather than years. Expansions will help: PEA has also secured some additional small contracts totalling 15MW since 30 June. These include an additional 5MW at Carosue (with contract extension to 2021), an additional 4MW at Garden Well (extension to 2023), and a new 4MW plant at Monty (contract duration 3 years).contract extensions were also secured at the Granites and DBS sites. FIG.3: EARNINGS FORECAST CHANGES FY18 FY18 Old New FY19 Old FY19 New FY20 Old FY20 New Revenue % % % EBITDA % % % NPBT NPAT EPS Dividend per share Source: Baillieu Holst estimates % % % % % % % % % % % % Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 3

4 Appendix FIG.4: LONG TERM MOMENTUM INDICATORS Source: Iress FIG.5: SHORT TERM MOMENTUM INDICATORS Source: Iress Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 4

5 This document has been prepared and issued by: Baillieu Holst Ltd ABN Australian Financial Service Licence No Participant of ASX Group Participant of NSX Ltd Analysts stock ratings are defined as follows: Buy: The stock s total return is expected to increase by at least percent from the current share price over the next 12 months. Hold: The stock s total return is expected to trade within a range of ±10-15 percent from the current share price over the next 12 months. Sell: The stock s total return is expected to decrease by at least percent from the current share price over the next 12 months. Baillieu Holst Analysts stock ratings distribution as of 05 September 2017: Buy: 64% Hold: 32% Sell: 4% Disclosure of potential interest and disclaimer: Baillieu Holst Ltd (Baillieu Holst) and/or its associates may receive commissions, calculated at normal client rates, from transactions involving securities of the companies mentioned herein and may hold interests in securities of the companies mentioned herein from time to time. Your adviser will earn a commission of up to 55% of any brokerage resulting from any transactions you may undertake as a result of this advice. When we provide advice to you, it is based on the information you have provided to us about your personal circumstances, financial objectives and needs. If you wish to rely on our advice, it is important that you inform us of any changes to your personal investment needs, objectives and financial circumstances. If you do not provide us with the relevant information (including updated information) regarding your investment needs, objectives and financial circumstances, our advice may be based on inaccurate information, and you will need to consider whether the advice is suitable to you given your personal investment needs, objectives and financial circumstances. Please do not hesitate to contact our offices if you need to update your information held with us. Please be assured that we keep your information strictly confidential. No representation, warranty or undertaking is given or made in relation to the accuracy of information contained in this advice, such advice being based solely on public information which has not been verified by Baillieu Holst Ltd. Save for any statutory liability that cannot be excluded, Baillieu Holst Ltd and its employees and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Baillieu Holst Ltd assumes no obligation to update this advice or correct any inaccuracy which may become apparent after it is given. Baillieu Holst Ltd ABN Australian Financial Service Licence No Participant of ASX Group Participant of NSX Ltd Melbourne (Head Office) Address Level 26, 360 Collins Street Melbourne, VIC 3000 Australia Postal PO Box 48, Collins Street West Melbourne, VIC 8007 Australia Phone Facsimile melbourne@baillieuholst.com.au Adelaide Office Address Ground Floor, 226 Greenhill Road, Eastwood SA 5063 Postal PO Box 171 Fullarton SA 5063 Phone Facsimile adelaide@baillieuholst.com.au Bendigo Office Address Level 1, Forest Street Bendigo, VIC 3550 Postal PO Box 84 Bendigo, VIC 3552 Phone Facsimile bendigo@baillieuholst.com.au Geelong Office Address 16 Aberdeen Street Geelong West Vic 3218 Postal PO Box 364 Geelong Vic 3220 Australia Phone Facsimile geelong@baillieuholst.com.au Gold Coast Office Address Suite 202 Level 2, Eastside Building 6 Waterfront Place, Robina QLD 4226 Phone Facsimile goldcoast@baillieuholst.com.au Newcastle Office Address Level 1, 120 Darby Street Cooks Hill, NSW 2300 Australia Postal PO Box 111 The Junction, NSW 2291 Australia Phone Facsimile newcastle@baillieuholst.com.au Perth Office Address Level 10, 191 St Georges Terrace Perth WA 6000 Australia Postal PO Box 7662, Cloisters Square Perth, WA 6850 Australia Phone Facsimile perth@baillieuholst.com.au Sydney Office Address Level 40, 259 George Street Sydney, NSW 2000 Australia Postal PO Box R1797 Royal Exchange, NSW 1225 Australia Phone Facsimile sydney@baillieuholst.com.au Baillieu Holst Ltd ABN Page 5