SP Ausnet (SPN) is an energy infrastructure company, operating mainly in Victoria. It also operates a gas distribution network in WA. The group has three energy networks, electricity transmission, electricity and gas distribution.
All networks are 100%-owned and located in Victoria, operating as regulated natural monopolies given the high barriers of entry.
- The Electricity Transmission Network carries electricity from power stations to electricity distributors around Victoria
- The Electricity Distribution Network carries electricity from the transmission grid to customers throughout eastern Victoria
- The Gas Distribution Network carries gas from the transmission grid to customers mainly located in western Victoria
SPN’s 1H13 results were a significant improvement on 1H12, mainly driven by an increase in regulated tariffs.
Net profit climbed 15.6% on-year to $169.0 million, which came on the back of a 6.5% increase in revenue. EBITDA over the half grew an impressive 6.5% to $525 million.
SPN’s balance sheet also improved in the half, with net gearing ratio dropping from 60% to 56% and interest cover increasing form 2.6x to 2.7x. On the funding front, the group has $775 million debt maturing in March 2013.
While the company does have the ability to pay this from current cash (approx. $427 million) and $625 million in undrawn committed bank debt facilities, we wouldn’t be surprised given the current low interest rate environment if SPN refinanced the loan at a significantly lower rate.
SGN’s monopoly-like business gives it a stable and predictable income stream in which to pay distributions. This saw the company pay a 4.1 cent distribution in 1H13, a 2.5% increase on the prior corresponding half.
The groups also reaffirmed its full-year guidance of 8.2 cents a security.
Based on a closing share price of $1.045, this represents an attractive yield of approximately 7.5%, or a gross yield of 8.5% if franking stays consistent at 33.3%. In the 1H13, 89% of SPN’s revenue was regulated and essentially inflation protected.
SPN’s yield makes it extremely attractive to income-seeking investors, especially given the recent RBA rate cut and the fact that interest rates are at their lowest since the GFC.
SPN is forecasting capital expenditure for 2013 to be around 24% higher than 2012. This investment should help the company continue to grow its earnings and distribution. SPN has not only forecasted for FY13 distribution growth of 2.5%, but also for FY14 growth of 2%.
SPN will continue to deliver stable and predictable revenue growth over the coming years and we think investors chasing yield will continue to drive the share price higher.
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