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Date : 16/12/2020

Infratil Limited

ASX :

IFT

Market Cap : $4.88 Billion

Dividend Per Share : $0.05

Dividend Yield : 2.32 %

Hold

52 Week Range : $3.15 - $6.91

Share Price : $6.60

We recommend members to "hold" their positions in light of recent events.

Company Analysis

Infratil Limited (ASX: IFT) has performed well in 2020. The private equity approach to infrastructure businesses has resulted in good deals being sourced, strong management to better the investments, and offloading these assets to realise profits. The stock has returned 33.6% year-to-date. Our initial coverage of Infratil was at a share price of $5.09 on the 2nd of November. Currently, the stock trades at $6.60 – returning 30% since our buy recommendation.


Source: Tradingview.com

Australian Super Takeover?

Infratil is a relatively stable stock with low degrees of volatility. The sudden surge in stock price can be attributed to the talks of AustralianSuper placing a takeover bid for 100% ownership of Infratil on the 8th of December. The initial bid put forward by AustralianSuper was for NZ$6.40 per share earlier this year. The new offer that was made on the 8th of December has priced Infratil at NZ$7.43 per share – representing a 22.2% premium to the closing price on the 8th of December.

Infratil is known to have rejected the bid as it falls under their valuation for their stock. Goldman Sachs is known to be the financial advisor for Infratil. Any following offer, if accepted, will result in AustralianSuper taking Infratil private and delisting the stock on both – the NZE and ASX.


Source: Infratil

Tilt Renewables

Another possible trigger for the surge in share price is the strategic review of Tilt Renewables (ASX: TLT) – an asset of Infratil. The firm owns 65.5% of Tilt, a renewable energy player that is listed on the ASX and NZE. This process may result in an acquisition of Tilt Renewables and as a result we saw a surge in TLT’s share price.

The interim results, ending 30th September 2020 showed that EBITDAF of $31.8 million was generated by Tilt and this was $2.9 million less than the previous corresponding period. This decrease can be attributed to the decrease in demand for energy following lockdowns in ANZ. The renewable energy firm produced 813GWh of emission free energy – an increase from the previous corresponding period when it produced 609GWh.

This is the only industry in the energy sector that has been growing at more than 10% per annum in the past decade. Geothermal, solar, wind, and hydro power have been at the forefront of this growth. Most developed countries in Europe and Asia are investing trillions of dollars in a bit to go carbon neutral by 2050. Studies conducted in 2019 found that Australia and NZ have been increasing the use of renewable energy sources by close to 17% every year. Funding has increased and will continue to do so as Australia looks to be on track in its aim to have 50% of its energy requirement sourced from renewables by 2025.

Research suggests 40% of New Zealand’s primary energy generation is already from renewable sources. Europe stands at 34% as of early 2020. The investments that have been going into the sector suggest sustainability in the high growth that has been seen. Costs have dropped by more than half as the use of solar energy has taken off. This will give rise to a lot more competition and investment in these sectors in the coming years.

With the completion of Waipipi wind farm construction, Tilt now operates 343 turbines across 9 wind farms in ANZ. The total installed capacity if 836MW. Along with this, Tilt is said to have already received approvals for its projects that are in the pipeline – solar and wind projects that have an installed capacity of 2500MW. Tilt’s performance has resulted in a lot of interest and Infratil’s strategic review comes at a time when it can make a sizable profit on an investment.

Outlook


Source: Infratil Limited

The above table shows all of Infratil’s assets and their contribution towards the overall profitability of Infratil. For a complete overview of all the industries that Infratil invests in and the consolidated financial performance of Infratil, members can view our initial report by clicking here.

The guidance forecast for Infratil’s assets for FY2021 are as follows:

  • Trustpower EBITDAF forecast – $185 – $205 million
  • CDC Data Centres EBITDAF forecast – A$145 – A$155 million
  • Vodafone NZ EBITDAF forecast – $425 – $455 million
  • Wellington Airport EBITDAF forecast – $25 -$30 million
  • Tilt Renewables EBITDAF forecast – A$65 – A$80 million

The potential sale of Tilt Renewables will result in a significant cash position for Infratil and we can expect the firm to acquire in FY2021. Qscan is Infratil’s latest acquisition and its forecast is still unclear, and the firm have not provided a guidance as of yet.

Recommendation

With the worst of the pandemic likely to be behind ANZ, Infratil’s headwinds have decreased going into the new year. We expect the firm to hit its guidance forecast in FY2021. The successful acquisition of Infratil by AustralianSuper may result in a further surge in stock price. Another catalyst for the stock price would be the successful acquisition of another asset if/when Tilt Renewables is sold off. We recommend members to “Hold” their positions as there is uncertainty surrounding these M&As at the moment.

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