Genex Power: Bouldercombe battery funded

About the author:

Author name:

By Max Vickerson

Job title:

Analyst

Date posted:

08 March 2022, 11:00 AM

Sectors Covered:

Industrials, New Energy

• Genex Power (ASX:GNX) is now funded for and committed to the 50MW / 100MWh Bouldercombe Battery Project (BBP) with Tesla.
• The project is funded using a combination of debt and equity. GNX will receive $35m in debt funding from Infradebt and has raised $40m from an institutional placement, with $10m more to come from a retail SPP.
• We maintain our ADD rating with a reduced target price of 31cps (-9%).

1H EBITDA miss but full steam ahead on BBP

GNX reported $5m EBITDA in 1H22 which was a miss on our forecast of $7m. Total revenue was higher than we’d thought based on the 2Q cashflow data ($12m vs $11m). Operating expenses were also significantly higher than we forecast and more than we would consider to be typical for ~100MW of solar farms. We believe that some costs related to other projects, such as Kidston Hydro (K2H) and BBP, are not being fully capitalised.

Funding has now also been secured with $35m in debt from Infradebt and up to $50m in new equity. $40m has been raised in a placement to institutional investors with another $10m to potentially come from retail investors. GNX estimates this additional capital will be adequate to fund the $60m expected equipment cost of BPP as well as leaving ~$15m free for working capital.

Strong prices in solar portfolio over summer but volumes lagging

Our estimates for the average merchant price received QTD for Jemalong is significantly higher than last year ($63.80/MWh to date 3Q22 vs $31.50/MWh). We therefore lift our forecast average price for 2H22 up to $52/MWh (+10%). Offsetting this though is expected lower volumes in the portfolio given the La Niña weather pattern to 111.2GWh (-10%).

Forecast and valuation update

We are now carrying higher operating costs than is typical for solar farms given the ongoing elevated expenditure, even after the commencement of K2H construction. We are allowing for this to extend out to FY25 until K2H is complete which lowers our EBITDA forecast by $6m-$7m in FY22-23.

Our assumed average revenue for the combined sales of electricity and LGC from the K3W project (FID not taken yet) was previously $62.50/MWh in FY24. Given stronger conditions in the QLD wholesale market and much higher prices for LGCs we lift this assumption to $75/MWh but we push the project timing out by a year to commence operations in FY25.

The combined effect of these changes with a roll forward and updated share count for the recent equity raise is a reduction of 3cps (-9%).

Investment view

GNX continues to offer a unique exposure to renewable energy and storage in the Australian energy market. In our estimation the Kidston Hydro (K2H) project is the biggest driver of value but the project is still in the early stages of construction. We think that as major construction milestones are met in the next 12-18 months that the stock will rerate towards our price target.

Smaller projects like the BBP will increase earnings and add upside potential in tight markets but this will be less predictable than the earnings from K2H.

We maintain our ADD rating on valuation upside but we think that investors will need to be patient as construction continues on K2H and the project is progressively de-risked. We see potential 12-m upside of 114%.

Risks

Successful completion of K2H project on time and on budget.

Solar production at Kidston Solar and Jemalong.

Marginal loss factors on all projects other than K2H and KS-1.

Electricity and carbon prices.

Interest rates, increases in inflation (K2H has mostly fixed escalators), energy market regulation and tax regimes.

Refinancing of existing debt when it matures.

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