Proactive Article17 Jun 2015 10:20
The share price movement in the past year has done little to reflect the progress made to date by OPG Power Ventures (LON:OPG).
The India-focused generator, which is led by chief executive Arvind Gupta, has passed something of a landmark.
It is generating 600 megawatts of electricity now that the 180 megawatt Chennai IV plant, in Tamil Nadu state, has gone into full commercial operation.
By September, it should be operating at 750 megawatts.
Contrast this with a year ago when the switch on of the third Chennai power plant took capacity to 270 megawatts.
So operationally, the company has come a long way in a very short space of time, with boss Gupta delivering the expansion plan on schedule and to budget.
Yet the share price has been little moved in that time.
For investors, this provides an opportunity – an entry point.
Financially, the company will start to benefit from this buildout in the current financial year. In the one just gone, OPG posted revenues of £100mln and EBITDA of £33.4mln.
The latter figure will more than double to £74mln in the current year and then move to £84mln for the year ended March 2017, according to the broker Cenkos.
Debts, currently £260mln (giving a gearing of 59%), are forecast to fall to around £204mln by March 2017.
Whisper it, analysts are even talking about OPG paying a dividend.
As profitability grows, so the valuation starts to look compelling, based on Cenkos’ numbers.
The enterprise multiple (which includes the impact of those debts) comes down from an historic 18 times to 8.1 this year and 6.6 next.
Cenkos analyst Andrew Blain told investors: “With a step change in earnings and cash flow anticipated this year, we believe OPG stock is highly attractive at current levels.
“A proven business model with significant expansion opportunities in a favourable macro environment makes for a compelling investment case; offering long term growth and income, we reiterate our buy recommendation.”
At this point it is worth reminding ourselves of the OPG business model.
Rather than go for broke (quite literally in the case of India’s dysfunctional power market) and building large, regional plants, the AIM-listed group has opted to develop smaller, modular units.
And they are able to alternate between imported and locally produced coal to mitigate the input costs, while the model has always been to tap commercial demand for electricity.
That said, today’s announcement revealed that Chennai IV will sell its output to the Tamil Nadu Generation and Distribution Company for 5.50 rupees per kilowatt hour effective until September.
With OPG set to hit 750 megawatts later this year, it is eyeing further capacity expansion to over 2,000 megawatts, according to City broker Sanlam.
Analyst Mark Cartlich in a recent note said the firm has the land to expand with the capacity for another 600 megawatts p