Update for March 2021: Full year in line

OPG Power Ventures 22 June 2021 Update
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OPG Power Ventures

Update for March 2021: Full year in line

Industrials

Spotlight - Update

22 June 2021

Price

14.2p

Market cap

£56.9m

Share price graph

Share details

Code

OPG

Listing

AIM

Shares in issue

400.7m

Last reported net debt at 31 December

£18.9m

Business description

OPG Power Ventures is an independent power producer based in Chennai, India. Its key asset is a 414MW coal-fired thermal power plant in Chennai and it also has 62MW sole assets in Karnataka. The majority of power (c 80%) is sold to independent commercial captive consumers, permitting preferential tariffs, improved payment terms and reduced concentration of risk with over 200 individual captive consumers.

Bull

Strong cash flow generation from a mature asset base (no development risk) and rapidly deleveraging balance sheet.

Exposure to the high-growth Indian economy.

Opportunities from nascent renewables business.

Bear

Coal price volatility against fixed-price tariffs affects margins (negatively and positively).

Environmental legislation likely to require additional capex at the Chennai plant.

Recent low solar tariff bid levels affect the returns available from new investment.

Analyst

David Larkam

+44 (0)20 3077 5700

OPG Power Ventures is a research client of Edison Investment Research Limited

OPG shares have been soft of late, reflecting concerns over the COVID-19 situation in India, where the company’s key power plant is based in the industrial city of Chennai. Today’s update is therefore reassuring, both for the fiscal year just completed and given commentary that the current lockdown appears to be having a more limited impact than the prior one in calendar 2020. From an investment perspective, cash generation remains key as the deleveraging should continue to shift value from the debt to the equity side of the equation.

Consensus estimates

Year
end

Revenue
(£m)

PBT

(£m)

EPS

(p)

DPS
(p)

P/E

(x)

Yield
(%)

03/19

140.6

16.8

3.81

0.0

3.7

N/A

03/20

154.0

14.5

2.11

0.0

6.7

N/A

03/21e

93.6

18.9

3.40

1.1

4.2

7.7

03/22e

112.2

13.4

1.80

0.0

7.9

N/A

Source: company reports, Refinitiv (one provider)

2021 financial year in line

Management has confirmed that fiscal 2021 (FY21) profits after tax and cash generation are in line with their expectations. The plant load factor (PLF) was 58%, down from 75% in the prior year, due to COVID-19 shutdowns, while the average tariff was only marginally lower at R5.52 (FY20: R5.67). Strong cash generation in the year has seen total borrowings reduced from £56.8m to £46.6m.

FY22 outlook

Management provided FY22 guidance earlier (see consensus estimates table below) and no new updates were provided reflecting the current uncertainties in India, albeit the recent COVID-19 hiatus appears to be receding. We note the impact of the current lockdowns on OPG is much reduced. This is highlighted by an April 2021 PLF of 85% and May 2021 PLF of 65% against a PLF for H121 of 46%. Management also collected a further £5.7m since the start of FY22 from a customer in relation to historical contractual claims, which should help support FY22 cash generation. On the negative side, coal and freight costs are higher at the current time, although OPG’s exposure is partly mitigated through its fixed-price agreements. OPG is also exploring other coal sourcing options.

Changes to emissions legislation

Due to COVID-19, the requirement to meet new emissions regulations has been extended by the Indian government from 2021 to December 2024 for a majority of coal-based power plants in India. OPG had expected to invest £15m of capex to meet these requirements, much of which will now be deferred.

Valuation

The shares trade on a single-digit P/E ratio, highlighting significant upside value potential in the shares.

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United States of America

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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