Clean energy projects are the next toll roads and ports says PowerAsia
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Ten years ago pension funds invested in toll roads and port terminals for the solid reliable yields they threw off — and now PowerAsia is betting they will turn to energy projects.
PowerAsia (ASX:P88) plans to build or buy renewable energy projects up to 50 megawatts (MW), get them running, then sell off up to 70 per cent to entities looking for high long-term yields.
“It’s structured to take advantage of projects. The real value is in owning or retaining some ownership of a project, similar to the value that was in shopping centres when yields were quite low for interest rates,” says Tishan David, PowerAsia’s head of acquisitions.
Infrastructure funds are already active in the space in Australia.
By mid-October last year, there had been 18 deals by local and international funds buying existing renewable energy facilities, largely utility scale solar, in Australia, according to SERA Analytics
Yield hungry funds are all over renewable energy sector now.
But Mr David says few developers are working on projects in the sub-50 MW area, leaving them a “no man’s land” to operate in.
A listing to seal the deal
PowerAsia is a combination of three companies brought together in mid-2017.
But it only officially “exists” when it lists, likely around mid-March, because those deals only complete when the new parent lists.
PowerAsia is raising $9 million with shares offered at 20c each. It will have a market cap of $20 million.
All but $3.5 million of the IPO cash will go on acquisitions.
Mr David says they want to list in order to tap capital markets to finance projects. Further, the added disclosure opens up debt originators which “will not touch a company if you’re not a disclosing entity”.
Stephen O’Neill, managing director of Forte Securities which is handling the float, says it’s priced “at an attractive level”.
Forte convinced PowerAsia to list with a valuation of 4.7 times earnings, low compared to peers like Windlab (ASX:WND) which listed at a valuation of 8 times earnings.
That did mean however the owners weren’t so keen to hand over any shares to their advisor as payment: instead Forte is being paid wholly in cash, which works out to be a $630,000 fee.
The offer has been extended and is still open.
Mr O’Neill told Stockhead the delay was due to minor changes required by corporate regulator ASIC and gave them more time to market the deal to retail shareholders.
He says they will hit the minimum 300 investors in the next few days after some promising meetings in the last 48 hours.
Already making money
PowerAsia consists of two small solar energy firms in Australia and a project company from China.
The two local companies are profitable and will subsidise the project work both in terms of cashflow and in-house expertise.
PowerAsia is forecasting fiscal 2018 revenue of $34.3 million and pre-tax profit of $3.8 million.
In fiscal 2017, the consolidated revenue from the solar businesses Linked Energy and Standard Solar touched $16.8 million and they had a pre-tax profit of $1.5 million.