Stocks’ Details
 

Zenith Energy Limited

Zenith Energy Limited (ASX: ZEN) is a leading independent power producer in Australia with a market capitalisation of $149.39 Mn as on 29^th April 2020. Recently, the company updated the market that its core business of supplying power to remote locations has continued to be unaffected from the COVID-19 pandemic. The company has also worked to secure supplies of spare parts and consumables to address its operating requirements for the balance of the financial year 2020. During 1H FY20, the company recorded a decent set of financial number, which reflects the successful delivery of innovative remote power stations.


Financial Highlights (Source: Company Reports)

Revised Guidance for FY20: The company is expecting underlying EBITDA of around $30 million for FY20. ZEN anticipates revenue in the ambit of $59 million to $60 million as compared to previous guidance of $62 million to $64 million.

Stock Recommendation: Gross margin and EBITDA margin of the company stood at 59.0% and 50.6%, respectively in H1FY20, reflecting YoY growth of 12.6% and 13.1%. Current ratio of the company stood at 1.06x in 1H FY20 against the industry median of 0.50x. This reflects that the company is in a decent position to address its short-term obligations as compared to the peer group. The stock of Zenith has moved up by 45.99% and 56.25% within the last three months and six months, respectively. The stock of ZEN is also trading closer to its 52-weeks high level of $1.035 per share. On TTM basis, the stock is trading at a Price to book multiple of 1.8x, higher than industry average (Energy) of 1.1x. Hence, considering the above-stated factors, we give an “Expensive” recommendation on the stock at the current market price of $1.015 per share, up by 1.5% on 29th April 2020.

New Energy Solar

Minimal Impact of COVID-19: New Energy Solar (ASX: NEW) owns, acquires and manages a diversified portfolio of solar and renewable energy assets throughout the globe. The company has recently announced its results for the three months ended 31^st March 2020, wherein, it stated that marginal impact from the COVID-19 pandemic was experienced on the business. During the quarter, the company has executed a business continuity plan to minimise the financial impact of the pandemic, which include the entire investment management team to work remotely. As at 31^st March 2020, the company has interests in 16 solar power plants totalling 772 MWDC of capacity.


Portfolio Composition (Source: Company Reports)

Expected Production from Solar Power Plants:The company expects portfolio of solar power plants to produce more than 1,500 GWh of electricity once it is operational and the average PPA (Power Purchase Agreement) price is expected be greater than A$75 per MWh.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of New Energy Solar has corrected 17.28% and 16.94% during the span of three months and six months, respectively. As per ASX, the stock of NEW is trading towards its 52-week lower levels of $0.977. We have valued the stock using EV/Sales based illustrative relative valuation method and arrived at a target price with limited upside. Therefore, considering the correction in the past months and limited upside, we have a watch stance on the stock at the current market price of $1.020 per share, up by 1.493% on 29^th April 2020.

AusNet Services Limited

Selected to Deliver New Project by AEMO: AusNet Services Limited (ASX: AST) is engaged in the transmission and distribution of electricity. The company is also in the business of gas distribution. The market capitalisation of the company stood at $7.17 Bn as on 29^th April 2020. The company has recently provided a relief package to customers enduring hardship due to COVID-19 pandemic. AST will defer or rebate network charges from 1 April 2020 to 30 June 2020. Previously, the company has also been selected to develop, own and operate the contestable assets for the Western Victoria Transmission Network Project by the Australian Energy Market Operator (or AEMO). The company would be receiving long-term fixed payments, escalated annually, for providing these infrastructure services over ~ 30-year terms on the completion of construction of the project.


Key Dates for 2020 (Source: Company Reports)

Expected Growth in Dividend: AST forecast to pay a total dividend of 10.2 cps for FY20, reflecting the growth of 5% on FY19. The company anticipates continued annual growth of around 3% in its regulated asset base till FY22.

Valuation Methodology:Price to Earnings Multiple Based Relative Valuation (Illustrative)
 
Price to Earnings Multiple Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation:  The stock of AusNet is trading at a premium P/E multiple of 28.86x as compared to the industry median (Utilities) of 19.2x on TTM basis. It is also trading closer to its 52-week high level of $1.995. We have valued the stock using P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as AGL Energy Ltd (ASX: AGL), Mercury NZ Ltd (ASX: MCY) and Contact Energy Ltd (ASX: CEN) and arrived at a target price with the marginal correction of lower single-digit (in percentage terms). Hence, it can be said that the stock is slightly overvalued. Thus, based on the above-stated factors, we have a watch stance on the stock at the current market price of $1.925 per share on 29^th April 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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