Genex Power: Coffee is for closers so come get a cup

About the author:

Max Vickerson
Author name:
By Max Vickerson
Job title:
Analyst
Date posted:
18 April 2021, 9:00 AM
Sectors Covered:
Industrials, New Energy

  • Genex Power (ASX:GNX) is raising $115m in new equity to be ready to reach financial close on the Kidston Hydro project (K2-H).
  • The additional cash raised allows GNX to reach financial close without needing a JV partner.
  • We increase our base case valuation to 34cps (+6%) on updated K2-H modelling including the 100% ownership stake and additional equity.
  • We upgrade our rating to ADD given our price target (login to view) and the funding of K2-H being secured following the capital raise.

GNX’s $115m should get it to financial close

The new equity that GNX has raised will allow the company to fund K2-H without a joint venture partner.

We think this drastically de-risks the company’s prospects and secures the path for the most significant asset in GNX’s development pipeline, especially now that it will have a 100% stake rather than a 50/50 share.

GNX is looking forward to a mostly fixed revenue stream from the offtake agreement with EnergyAustralia (EA) that transfers energy market risk to EA.

The offtake agreement is structured as three consecutive tenyear periods with the option for EA to purchase the asset at the end of the contract.

What’s next in the development pipeline?

GNX also has a number of other projects at different stages of development. The 50MW Jemalong solar farm is in commissioning and the 50MW/75MWh Bouldercombe battery and 150MW Kidston Wind project are in early stages of planning and analysis.

Bouldercombe is further progressed than the wind project with a site selected and GNX expects could be developed quickly.

The potential expansion of the existing Kidston solar asset appears to be on the backburner which we think is unsurprising given the large increase in both rooftop and grid scale solar projects in Queensland.

Updating our valuation and financial model

Our valuation of GNX is still derived using a 50/50 blend of DCF and asset multiple ($m/MW) methodologies.

We have significantly updated our financial model to incorporate K2-H and we are using a more detailed DCF given the clarity we now have on how the project can proceed (higher ownership stake funded by new equity).

We also update our asset-based valuation to exclude the solar expansion but it includes the Bouldercombe battery and a higher assumed multiples for the wind project. The net impact is to increase our valuation to 34cps (+6%).

Upgrade to ADD with K2-H funding secured

We’ve said for a long time that we see K2-H as the most significant value driver for the company. With the funding question resolved by the equity raise and the ownership structure simplified by dropping the JV partner we think GNX has been significantly derisked.

There are not many listed pure play renewable companies on the ASX to meet the growing investor demand for exposure.

We think that as GNX completes the outstanding items to formally reach financial close (estimated to be by mid-May) the share price will move towards our valuation.

GNX will still need to successfully construct K2-H but the company has structured its contract to transfer most of the risk onto its contractors. We upgrade our rating to ADD on the K2-H funding certainty and the upside we see to our price target with 70% upside (login to view).

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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