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Mid-Cap

Result Coverage : Spark Infrastructure

September 02, 2015 | Team Kalkine
Result Coverage : Spark Infrastructure

Spark Infrastructure Group
 
  • The company's existing investment portfolio consists of a  49% interest in each of SA Power Networks, CitiPower and Powercor, three leading electricity distribution businesses in Australia. Together, they provide services to over 2 million customers nationally.SA Power Networks is the only significant electricity distributor in South Australia, delivering electricity to around 847,000 customers over an area of approximately 178,200 square kilometres. It is one of the largest infrastructure businesses in South Australia.CitiPower owns and manages the electricity distribution network servicing Melbourne’s central business district (CBD) and inner suburbs and delivers electricity to almost 323,000 customers.Powercor Australia (Powercor) owns and manages the largest electricity distribution network in Victoria and delivers electricity to approximately 757,000 customers across 65% of the State.The other 51% interest in each of these assets is held by Cheung Kong Infrastructure (CKI) and Power Assests Holdings (PAH), which are part of the Cheung Kong Group.Spark Infrastructure’s portfolio also includes an interest in DUET Group.
 
Operational update
 
  • SAPN and VPN are among the most efficient and safest businesses in Australia in their categories. The AER benchmarking report ranks CitiPower, Powercor and SAPN as numbers 1, 2 and 3 respectively when it comes to opex productivity. The cumulative STPIS for SAPN for the five-year regulatory period ended 30 June 2015 was $ 49 million and, for VPN, the figure for four regulatory years ending 2014 was $ 36 million. The increased unregulated revenues for SAPN increased reflecting the step up of NBN contracted revenues of $ 31 million. The VPN world class program is making good progress resulting in cost savings in FY 2015 over FY 2014. The economic interest in the DUET group delivered accretive cash flow returns. The AER has confirmed the move from price to revenue caps and the volume risk has therefore been eliminated.
 
HY 2015 financial results
 

  • The DPS grew by 4.3% to 6 cents per share and the stand-alone payout ratio decreased by 10.3% to 87%. The look through payout ratio (post net costs) declined by 10.7% to 52.9% and the total assets company distributions grew by 2% to $ 94.5 million. The stand-alone OCF) rose by 16.7% to $ 101.2 million and the stand-alone OCF per security increased 7.3% to 6.9 cents per share. The look through OCF post infrastructure costs rose by 15.4% to 11.3 cents per share. The net debt to RAB at asset company level fell by 1.6% to 76.2%. The underlying net profit after tax grew by $ 5 million to $ 70.8 million and the statutory net profit after tax fell by $ 56 million to $ 39.2 million.
     
    
       Result Highlights (Source - Company Reports)
 

  • The aggregated financial performance of SAPN and VPN on a 100% basis shows a 10.2% increase to $ 942.3 million for regulated revenues DUOS, a 5.7% decline in regulated revenues AMI to $ 56.5 million, a 7.4% increase in semi-regulated revenue others to $ 43.5 million and a 24.5% increase in unregulated revenue making a 10.7% increase in total revenues ex customer contributions to $ 1.18 billion. Taking into account an increase of 37.5% from customer contributions makes a total of $ 1.27 billion in stock. Total operating costs shrank by 6.6% to $ 372.9 million producing an EBITDA ex customer contributions up by 12.7% to $ 808.4 million and EBITDA including customer contributions up by 14% to $ 899.7 million. The EBITDA margin was up by 1.2% to 68.4%. SAPN 100% results showed total revenues up 13.8% to $ 591.9 million, EBITDA ex customer contributions by 10.4% to $ 397.6 million and EBITDA margins down 2% to 67.2%. Total capital expenditure was up 4.2% to $ 158.3 million. VPN 100% results showed an increase in total revenues of 7.7% to $ 589.4 million, EBITDA ex customer contributions up by 14.9% to $ 410.8 million and EBITDA margin up by 4.4% to 69.7%. Total capital expenditure was down by 14.6% to $ 197.9 million.
     

 
  • In terms of funding, CitiPower finalised a bank debt bridging facility of $ 335 million in July 2015 maturing in December 2016 to replace the existing facility maturing in February 2016. Powercor executed a bank debt bridging facility of $ 350 million in July 2015 maturing in December 2016 to refinance medium-term notes maturing in November 2015. SAPN placed a USPP of $ 309 million (USD $ 235 million) in June 2015 maturing in June 2027 to replace existing credit wrapped notes maturing in July 2015. After 30 June 2015, SAPN concluded new interest-rate swaps worth $ 2.4 billion to hedge interest-rate risk for the new five year regulatory period. Some existing fixed rate notes provide protection for year 1 ($ 250 million) and year 2 ($ 350 million). The average of swap/interest-rate costs for 2016 shows a significant reduction on the previous rate set in 2010.
 
  • It is important to remember that the underlying figures point to a more positive trend with total income up by 1.6% to $ 146.9 million and net profit up by 5% to $ 70.8 million. Investors should understand the differences between statutory numbers and underlying numbers and why underlying numbers are a much better reflection of business performance and this can be illustrated by taking two examples. In June 2015, the group signed an agreement with the ATO on the treatment of interest deductions on loans and booked a loss of $ 31.7 million in the cancellation of deductions for previous years. In another instance, the company changed its method of accounting for certain categories of fixed assets and, if both sets of accounts had been prepared using the new method, profits in the last half year would have been down by $ 21.5 million. The group plans to pay an interim unfranked dividend on each stapled security of 6 cents compared to 5.75 cents in the previous period and is also advised that distributions for FY 2015 will be 12 cents per stapled security. This works out to a dividend yield of around 6.6% unfranked. The implications of the AER revenue cap means that the size of the RAB will determine the revenues and profits. The AER will determine revenues for the next five years in late 2015 and this could have a major impact on profitability during this period.
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