DUET Group (ASX: DUE) shares have plunged over 18% (from Feb 20 till July 22
nd, 2015) partly attributed to its disappointing first half of 2015 performance. As per the Duet group’s proportionate results, the total revenues fell 2.6% to $415 million from $426.2 million, impacted by the lower recontracted tariffs and volumes at Dampier Bunbury pipeline (DBP) as well as elimination of carbon tax revenues on the back of repeal of carbon tax legislation. The Transmission and Distribution revenues fell 2% to $364 million from $371.5 million in the first half of 2014.
Duet group’s operating expenditure also rose by 8.1% due to increase in recontracted fuel gas costs at DBP along with several other firm related costs. Accordingly, the group reported a decrease of EBITDA by 6.7% to $289.1 million in 1H15 from $309.6 million in 1H14. The adjusted EBITDA fell 7.4% yoy to $279.3 million during the period. Meanwhile, the group improved its net external interest expense by 11.7% to $142.6 million from pcp, on the back of resetting the DBP’s base interest rate hedge book on recontracting. The Adjusted EBITDA less interest declined by 2.5% yoy to $136.7 million in 1H15, as lower DBP revenues and high operating expenditure had offset the lower interest costs. Duet group rose over $400 million of term debt and refinance during the first half of 2015. In addition, the firm has recently completed institutional entitlement offers and raised over $806 million at an offer price of $2.02 per new stapled security.
As per the segment highlights, DBP reported a revenue decline of 11% yoy to $194.1 million in 1H15. Throughput(TJ) fell 2.6% yoy, which is in line with the expectations, while delivered a 11% upift in the back halu deliveries on the back of solid demand in Pilbara. The transport revenue plunged 10.5% yoy to $188.2 million, impacted by 9.5% cut in recontracted tariffs. On the other hand, DBP is in-line in delivering FY15 earnings forecast of $112 million. DBP has a stable BBB- credit rating from S&P, as of December 2014.
The United energy revenues surged 6.1% yoy to $241.1 million in 1H15, driven by the rise of distribution revenue by 8.5% yoy to $178.8 million. This increase was mainly driven by the 4.9% rise of nominal annual tariff increase in CY14, post the $13.5 million annualized revenue adjustment on the back of CY12 STPSIS performance. The smart meter roll out was 96.9% complete as of January ending. The EDPR submission (2016-2020) is progressing well with UE submission scheduled during April, while AER draft determination scheduled in 4Q15. The Multinet gas division posted a marginal revenue decline of 0.2% yoy to $98.7 million, as the throughput (TJ) fell by 0.3% yoy impacted by milder spring. The Multinet gas division estimates better tariffs from CY16 and CY17.
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United Energy and Multinet gas tariff performance (Source: Company Reports)
With regards to the DBP development group (DDG) Wheatstone Ashburton west, the project pipeline completion was on track and Duet group expects to derive revenues since January of this year. The Fortescue river gas pipeline was on track to be completed by the first quarter of the year.
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WAWP and FRGP pipeline location (Source: Company Reports)
Outlook
Quite recently, the Duet group has announced that it would acquire Energy Developments Limited (ASX: ENE) for $1.4 billion of cash. The group intends to fund this transaction by raising an equity of $1.67 billion, which is strong supported by the investors. Meanwhile, Energy Developments board suggested an offer price of $8 per share (the stock is at $7.92 as of July 22
nd), agreed by major shareholders of ENE. Duet group will make a 1-for-2.69 entitlement offer to raise $1.12 billion at $2.02 cents per share. Over $550 million would be raised through institutional placement. Moreover, Duet group has confirmed its final distribution of 8.75 cents per stapled security for the second half 2015, resulting to the total distribution of 17.5 cents per stapled security for FY15.
Duet Daily Chart (source - Thomson Reuters)
The shares of DUET Group (ASX: DUE) have corrected over 15.2% in the last three months and around 12.8% over the last four weeks only. But, we believe that the improved FY15 results, capital raising and strong dividend yields (5.15%) can support the stock further.
Based on the foregoing, we give a “BUY” recommendation to the stock, at the current price levels of $2.18.