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My view is that the 8 cents/share asset replacement you refer to...

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Sewerat

28 Posts.

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06/02/18

13:25

Post #: 30855253
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Originally posted by joewolf ↑

Interesting - What prompts you to look to buy more. I am sitting on a bit of cash and am conflicted by the difference between being a generator and a market trader with peak power stations. That is the ERM - Code EPW vs IFN - I own roughly similar stakes in both. To a large degree this one has been a bit of a dog then after putting more into it and an average down then the CR so now I am about even whereas the same experience in ERM has been turned around in the last 6 months so now a decent profit.

To invest in this discussion - These are my points. Trading in the electricity market seems to be easier than being a renewables producer - how come the wind is so unpredictable - then that's the real issue if the wind is blowing and the sun is out then there are no surprises but the peakers only wake up for the extremes. However, ERM skill is the arbitrage and forward contracts selling to business. Understanding their financials is extremely hard and at times I don't think you can unpack them. So its really difficult but the upside is that they can make more per kWh in the USA than they do uin Australia. They have these 2 peakers but you don't see them working much but they derive a return and a few of the larger producers seem to be building new ones.

So if we then look at IFN. The drawback is the debt. The lack of wind yet it can generate free cash flow per unit around 12c and around 4c on the profit and loss basis with finance costs really hurting. Management - well I have always had a question mark. Seems at times look a bit innovative but at other times seem to just let things happen - subjective view. Again pretty complex financials but really not that difficult if you simplify them to the basics - Company needs to be a distribution paying company and to do that it needs to restructure debt. Even another CR to get debt levels to acceptable low rate finance is the goal. Deliver the 12c pay around 4c per unit and slowly grow that and at that level, if you are looking @ say a 5% yield that's a value of around 80c. The other 8c in cash flow is asset replacement.

So really its almost impossible - in my case to separate the opportunities. AGL has done well over the past 5 years but Origin hasn't but IFN has been the best. Over 10 years then IFN has been the worst and AGL the best.

Just to confirm I hold both ERM and IFN and have a much smaller AGL shareholding - don't hold ORG.

Anyone have any thoughts?

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My view is that the 8 cents/share asset replacement you refer to (accounted as 'depreciation' charges on P&L statements), when actually occurs years hence, might be significantly lower, esp. with technological improvements with new turbines & blades.
IFN has almost half the operating cashflow of Cochlear but is 1/20th the capitalisation.
Bought more today and intend to hold out and see if batteries can be spliced onto windfarms to improve the penetration into higher demand times of the electricity market. We need lots of that sort of stuff to move away from old clapped out coal fired plants on a reliability basis, let alone greenhouse gases!

IFN Price at posting: 61.5¢ Sentiment: Hold Disclosure: Held
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