Baillieu Holst Research, page-3

The report seems super conservative, as they have only considered stage 1 in their DCF valuation...

"Valuation and target price: We have considered Stage 1 only and used a DCF analysis as there are still many moving parts with Stage 2. Our DCF uses a beta of 0.9, risk free rate of 5.0%, market risk premium of 6.0%, terminal growth rate of 3.0%, debt cost of 6.0% and debt/equity ratio of 70/30. Using these parameters gives an equity cost of 10.4%, an overall WACC of 6.1% and a valuation of $0.26, which is the basis for our 12-month target price."

They have considered that revenue will start Q1CY18 (or half way through FY18), so half a year's revenue in FY18, full revenue in FY19 (seems reasonable). Their revenue is simply based on 145,000 MWH times the floor price of $90/MWH. It seems very likely to me that this price could be greater at times.

I have done a DCF analysis based on Stage 2 going ahead. I used the same discount rate that Baillieu used, and stole some of their figures for expenses, and extrapolated some figures (i.e. take my analysis with a grain of salt). My revenues from stage 2 are based on completion halfway through CY19.

My revenues do not include any uplift on electricity price from the PSH (conservative). But I also don't include the expense of utilising the new transmission line. Maybe these two omissions balance out?

The interest expense is based on borrowing the full $750m in FY20, rather than incrementally up until completion of the PSH (conservative). And other expenses are probably over-stated - I simply extrapolated Baillieu's expenses, but some economies of scale should be achieved.

DYOR. This calculation is very rough, and does not quantify risks involved.

	Column 1	Column 2	Column 3	Column 4	Column 5
0	Bailleu (with their assumptions)
1		FY18	FY19	FY20	Perpetuity
2	years from today	0.75	1.75	2.75
3
4	Revenue	$6,550,000.00	$13,100,000.00	$13,100,000.00
5	COGS	$800,000.00	$1,600,000.00	$1,600,000.00
6
7	Gross profit	$5,750,000.00	$11,500,000.00	$11,500,000.00
8
9	Expenses	$4,900,000.00	$4,000,000	$4,000,000
10	Interest Expense	$3,000,000.00	$4,200,000	$4,200,000
11
12	FCF	$(2,150,000.00)	$3,300,000.00	$3,300,000.00	$3,300,000.00
13	Discount rate	6.1%
14	DCF	$57,821,042.60
15
16	SOI	227600000
17
18	DCF (SP)	$0.254
19
20	Assuming Stage 2 cashflows, with 50% risk reduction
21	Revenue (Stage 1)	$6,525,000.00	$13,050,000.00	$13,050,000.00
22	Revenue (Stage 2)		$35,000,000.00
23	COGS (Stage 1)	$800,000.00	$1,600,000.00	$1,600,000.00
24	COGS (Stage 2)			$4,250,000.00
25
26	Gross profit	$5,725,000.00	$11,450,000.00	$42,200,000.00
27
28	Expenses	$4,900,000.00	$4,000,000	$14,742,358
29	Interest Expense	$3,000,000.00	$4,200,000	$19,200,000
30
31	FCF	$(2,175,000.00)	$3,250,000.00	$8,257,641.92	$8,257,641.92
32	Discount rate	6.1%
33	DCF	$144,703,820.96
34
35	SOI	227600000
36
37	DCF (SP)	$0.636
38
39	Assuming Stage 2 cashflows (de-risked)
40	Revenue (Stage 1)	$6,525,000.00	$13,050,000.00	$13,050,000.00
41	Revenue (Stage 2)		$70,000,000.00
42	COGS (Stage 1)	$800,000.00	$1,600,000.00	$1,600,000.00
43	COGS (Stage 2)			$8,500,000.00
44
45	Gross profit	$5,725,000.00	$11,450,000.00	$72,950,000.00
46
47	Expenses	$4,900,000.00	$4,000,000	$25,484,716
48	Interest Expense	$3,000,000.00	$4,200,000	$34,200,000
49
50	FCF	$(2,175,000.00)	$3,250,000.00	$13,265,283.84	$13,265,283.84
51	Discount rate	6.1%
52	DCF	$231,803,953.40
53
54	SOI	227600000
55
56	DCF (SP)	$1.018