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I agree with you, Kiwi. There's always a few negative media reports of tariffs falling, costs going up, GST, delayed payments, etc. and yet MYT seem confident in what they're doing to keep raising money and constructing more wind / solar farms while the opportunity is there. I just wonder if MYT are blind to / unprepared for the unforeseen but I'm happy that that's easily priced in at a �50m market cap.
Thanks ZENGAS - I hadn't heard that podcast before. It's more of the same but always nice to hear the continued confidence they have in what they're doing. It sounds like I've followed the same strategy as you, ZENGAS - just kept topping up over the past few months as the price has been suppressed. We'll be in MYT's top 10 shareholders at this rate ;) I'm really surprised the price came down yesterday to where it was during the uncertainty of the end of year results. I thought we'd never go back there with the results out. I also don't understand why the seller/s wouldn't wait for the half year results, which I'm sure will be good and sell into a rally. The share price falling back is not questioning my opinion of the company and I continue to buy. I see someone with a large stake who continues to want out of India probably due to the concern of bank bad loans across India - it's not MYT specific; just the sector and/or country.
What's happened today!?! The never-ending big seller/s selling continues but how much longer until they're finally done? The biggest risk in my mind was the DISCOMs not paying but that seems to be mostly resolved now (reportedly down to 2-3 months). I know we've talked a lot about valuation in the past but as a recent comparison - which seems to have gone unnoticed - Renew have offered to buy Orange Renewable for $950m. Orange has 600MW (mostly wind) and debt not too dissimilar to MYT. So if MYT has double the capacity (1200MW) would it be worth... ... .... Well, at least considerable more than £40m ;)
No other views? Just us then, Hounddog. I haven't been able to track down the big seller/s. I considered MOAB (they say they still own MYT) and Capital Research & Management (won't confirm either way). The FT.com website shows CR&M have sold millions of shares but it also shows they still hold 12m (what they've always held) so I don't know what to believe there. I see the following 3 main reasons for wanting out... (1) Energy market competitiveness / potential bubble (especially solar) will lower returns and margin of safety. Only a couple of years ago MYT themselves were talking about higher prices (to better account for future inflation) so lower prices, in theory, should make them less profitable. If / when a couple of companies get into trouble all the funds will want their money out at the same time. COUNTER: Lower prices means renewables are here to stay, which could be interpreted as reducing the risk in MYT. I think I'd be more concerned if prices where increasing to 2x coal because renewables would be a much harder sell. Moreover MYT make a point of being more profitable with scale despite lower prices. (2) These Indian distribution companies delaying payments / changing agreements / wanting prices lowered to match the auctions (regardless of the location, scale, creditworthiness, etc.) / wanting the generation based incentive to go straight to them (or taking it off the price they pay) / not using renewables because they can't be bothered to plan for them / etc. These are all horror stories I've found online. It seems the payment delays have been for all power, but particularly, important for renewables who need to cover their interest payments from rapid growth. I have to admit, I underestimated how serious these issues could be earlier in the year. COUNTER: The government's UDAY scheme now covers most of the "DISCOM's" debt to power companies... making it more likely that MYT will get paid quicker in the future (although I imagine it won't be as smooth as that). MYT gained $27.7m post period end, which does bring the proportion of their receivables in line with recent years, as Ravi says in the annual report. I still think a lot the other talk is just posturing by the DISCOM's. At least the state and national government's are on the side of renewables but they could / should be more assertive. (3) Considering (1) and (2) above, the debt could be a problem if a few major things went against MYT. What do you think? Any other major risks / concerns that I've missed out? None of these are new, and if anything, I think moving in the right direction. For the record, I have continued to buy MYT recently up to 30p and back down to where we are now. Factoring in these risks (that maybe I was not giving as much weight as I should), my valuation has not changed.
IM-limited-O the accelerated depreciation, which I estimate to be on 60-70% of the cost of the turbine, is a real positive for MYT. It would have been even better if the towers could have been accelerated from 50 years too! The tax benefits from accelerated depreciation is one of the main reasons Warren Buffett got into wind / solar. MYT doesn't have profits elsewhere so it won't really help us in the way it helps Berkshire. Still, the accelerated depreciation means less or no tax in the early years, which leaves more for growth and/or to pay down debt - perfect. I guess this was a big motivator for MYT changing to the Indian accounting standards ahead of the 2018 deadline. I know from your previous posts you'll already know that, Hounddog - it's more for my benefit putting my own thinking into words! So the question was whether the wind turbines will last only 15 years instead of 25-30 years assumed on the previous European accounting standards. The problem being MYT will need to spend capital to replace them earlier than expected. Here's my thoughts on one of the components: rotor blades... The rotor blades are approx. 20% of the turbine cost and have changed from 30 to 15 years under the new Indian accounting standards. There was some UK research a couple of years ago that suggested blades are good for 15 years (I think) - the blades are still useful but there is a huge drop in efficiency from wear and tear and lack of maintenance. These studies were based on early industry turbines - not the turbines MYT has in place (and even MYT's early ones aren't great compared to what they have now). I'd hazard a guess that MYT will get 25 years of 90%+ efficiency from their rotor blades. However they may want to replaces the blades earlier for technology (or tax) reasons, although I doubt they will. The technology is moving so fast now that blades can be twice as long and the towers a lot taller. It means we can capture 2-4 times the wind power using the same footprint. This is why I'm not too concerned about the lower auction prices. Equipment costs are falling too. So aside from the early tax benefits, I think it's fair and reasonable that these assets can depreciate quicker as the technology is developing so fast. IMO it should benefit MYT. Like Hounddog, I'd also encourage others' views - especially those that are different from mine or ours. No-one will be attacked for the ideas they share. We're all here to learn. I've continued to enjoy posting on this board because we discuss, challenge, and debate MYT - the good, the bad and the ugly - 90% good, 8% ugly and 2% bad IMO ;)
I like your logic, Hounddog. I think your $150-160m figure is a good figure to use because even if the 1000MW portfolio fell a little short of that, the extra MW already added this year would make up the difference. And next year we'll be in the region of $200m per annum of power revenue from a 1700MW portfolio... assuming MYT achieve their huge 700MW target this year, of course! I'm confident they will as the majority of it's solar (approx. 6 months to completion vs 9 months for wind) and they have a good track record to date. I'm sure there'll be no looking back after this year as their scale (and cash flow) at 1700MW is going to help immensely in the upcoming wind and solar auctions.
Hounddog - I had a brief look into Greencoat UK to compare them to Mytrah and the following is just my first impressions. I certainly wouldn't post these thoughts on their chat board... It's an interesting idea to use DCF and GAV - it certainly makes them looks good. I'm not convinced though: they've chosen measures that they think they can win with (fair enough) but then they measure it themselves (not so good). I'm sure it'll all be above board and audited. I prefer MYT's more conventional approach. I guess UKW and MYT just have very different philosophies. In my mind, the MO for UKW is: look good on their own measures; the share price rises; fundraise off the higher share price; buy an already completed wind farm; look good on their own measures again; share price rises again; fundraise off the higher share price again; buy a wind farm; and so on. Nothing wrong with that. It seem to be working for them. I prefer MYT building a business with longer-term value by doing it themselves. MYT will have 3x the MW installed now compared to UKW (1300MW vs 436MW). UKW generating £79m income vs MYT £100m and UKW generating £52m in cash vs MYT £72m (including the post period end $27.7m). Do any of you reading disagree with these numbers? By my estimates, MYT will generate double the income of UKW this financial year. And yet operating expenses are only approx. 15-20% higher than UKW. However UKW are making considerably more profit, as you said... PBT £61m (UKW) vs underlying PBT £8m (MYT - based on the same accounting standards). I know I'm being a little generous to MYT here using the underlying figure adding back the one-off re-finance costs and 3-year employee share options. I do think this is largely down to lower debt and interest payments (UKW £100m debt vs MYT £770m debt). Just comparing today's PBT (not future potential) might suggest UKW would be valued 8 times MYT but they're valued at 22 times! £880m vs £40m. UKW's PBT is less than 2 times that of our recent friend and comparator, OPG. And yet UKW is valued at 5 times OPG (£170m). I'd definitely take OPG over UKW. And I'd take MYT over both (that shouldn't come as a surprise). As you say, quite a big discount for the leverage. I also think (based on OPG too) that there's quite a big discount for being in India - an unjust discount IMO. As always, we welcome anyone to challenge and disagree.
More useful than the Mail is an interview I wasn't aware of until the weekend. It's Stock Tube on 12 June but you'll have to search for: "Results 'a clear demonstration of our ability to grow the business' - Mytrah's Bob Smith". After all our discussions over the past couple of weeks, for me, this answers the two main concerns: leverage and falling prices.
The power of the media, hey?! It's incredible what happened today based on a nothing piece in the Mail. I've only seen the article online so maybe I'm being unfair and there's more in the actual newspaper. Still, I'm not complaining - it's nice to see a proper market for MYT shares again. Unlike recently where the volumes have been low and almost all the trades that have been buys show up as sells. I know the trades on Friday were buys but they all showed as sells. LSE (this LSE not the real LSE) said if the trade is less than halfway between the bid and ask prices, it will show up on their website as a sell even if it is a buy. That explains why most of the recent purchases showed up as sells. Today is far more accurate. Although this website couldn't handle all the MYT share trades today as it's lost all record of the trades from this morning and last week! The seller/s had chance to shift more shares too. I looked at Greencoat UK today and the patterns of selling is very similar to MYT so, again, not sure if that gives us a clue to the seller/s or not?
Absolutely agree - the comment about 62MW costing £45m was not intended to suggest OPG overpaid - as you say, that's how much it costs. My intention was to highlight how the valuations we're seeing - for both OPG and MYT - are ridiculously low. The $1bn debt MYT has is to fund it through to completion of 1700MW (only 500MW of that is solar - all this year and most probably completed already). I'm sure we'll then see them take a similar approach to OPG in paying off a substantial amount of that debt. Wuffle - if you do have a look at payment terms, please do highlight any differences you notice - thanks. There won't be a tie-up with OPG and MYT, which is a good thing for both companies. MYT have positioned themselves as 100% renewable. The management style, strategy and culture seems to be very different too. Best for them just to have good relations and mutual respect for each other :) Ctw - I agree OPG is a compelling investment case and looks very undervalued and a good investment. OPG share price rising will be good for MYT and vice versa. I hope OPG is taking a lead - MYT will follow. Thanks to you all for putting forward your views. Learning about OPG has improved my understanding of MYT.
Oh and definitely agree about poor IR! Is it bad that I thought OPG were much better than MYT?! There are far more news posts on their website in 2017 than on MYT's. KSK definitely come last though. Having said, I think MYT were a little hamstrung this year by the auditors taking their time on the accounts because of the change to the new Indian accounting standards. The auditors didn't give them a timescale so they couldn't even tell us that the results would be out on June X. I'm informed that the results were ready months ago otherwise.
Great to have you join us holycustard! I was tempted to buy into OPG when researching so I'd own both too but, as one of the people said on the OPG message board, it's vanilla. Personally, I don't think it's a good strategy to "reflect the power mix of India" - that's not an actual quote but captures what OPG management have said. Far better IMO to focus - wind and solar are close enough, for me. It also gives MYT a brand. Debt vs. dividend! I agree: pay off the high interest debt rather than an early dividend. I didn't challenge it as I thought I might get called out for "trolling" - I'm aware I was talking up MYT on a competitors message board ;) We agree with you that it might be better if MYT tapped the brakes on the debt / speed of growth. I think it'll happen after the 700MW have been developed this year. IMO last year was more of a risk because it was all wind, which takes time to get the full benefit. This year, at least 500MW (of the 700MW) is solar so that'll start producing cash straight away. The wind assets will get a full run the following year, which means all those MW of wind built last year will have a full monsoon season this year and the total will take us close to $200m EBITDA.
FYI, I had some replies back on the OPG Power message board (when comparing to MYT). In short: OPG share price has followed a similar pattern down to MYT OPG nearly bought a company called Lanco Lanco were badly managed and it didn't help sentiment towards any of our share prices OPG are clearly undervalued like MYT (although more than 4x MYT value) OPG using cash flow to pay off debt and pay a dividend now OPG much slower growth now compared to MYT OPG invested £45m to build 62MW solar! More than our current market cap with 1300MW+ And IMO it seems coal price and coal transport / network creates a much greater risk than wind/solar on long-term PPAs. Now I don't know too much about coal plants but I do know they use a lot of water and so, for me, I want to avoid these kinds of investments as the preciousness of that resource could be a future risk. In comparison wind is as cheap as coal and becoming cheaper as well as more efficient: the taller towers and longer blades mean that we can now capture 2-4 times the wind that the slightly older turbines could - with the same footprint.
Interesting, Hounddog - I'll have a look at Greencoat over the w/e so I can add to your thoughts. The costs of turbines is much cheaper in India (for EXACTLY the same equipment). However the cost of electricity is about 1/3 of the UK and, like you say, the UK has a subsidy than India does not have / need. I'm sure you're right that interest on debt will probably have the biggest impact (India interest rates are 6.25% and I think the debt is closer to 10%). ReNew Power are not listed on any market - they're backed by Goldman Sachs. The $2bn valuation they were given (for 2000MW) was based on a recent finance deal with a Japanese fund. ReNew very similar to Mytrah.
Wuffle - interesting that you suggest / jest the cheapest way for OPG to expand into solar would be MYT shares as it certainly would be! OPG and MYT are getting into solar at about the same time - 186MW (OPG) vs 500MW (MYT) completed this year - and this just goes to show how cheap MYT is... OPG invested £45m last year to build 62MW of solar. That's more than MYT's market cap is today (£40m) yet MYT has 1000MW of wind with 700MW (solar and wind)! Incredible. Anyhow - it's been good to find OPG and your message board - thanks for the discussion. I'll head back to our message board but will keep an interesting eye on OPG.
I only came across OPG (and KSK) a couple of weeks ago when looking for MYT comparators. The graphs for OPG, KSK, and MYT have all followed a similar pattern so it seems the biggest impact has been India or Indian Power specifically falling out of favour over the past year - possibly due to falling prices / increased competition / fear of lower returns. I don't mean to mention the "L" word (Lanco) but maybe that has something to do with it too. I'm sure we'll all follow a similar pattern up so pleased to see the buys in OPG - I just think MYT will be much better ;)
The strange thing with both OPG and MYT is that their share prices are suppressed. OPG have had nothing but buys today - decent buys too - yet the share price hardly moves. MYT have had a similar problem, albeit with less volume. I've noticed that on the LSE website a lot of the "sells" have actually been "buys" - and almost all of my purchases have shown up as sells on this website. It'll move on a few big buys though! If I wasn't invested in MYT, thinking about long-term profit and cash, I'd happily buy some OPG for today's profit and cash and a more patient growth strategy.
Despite OPG and MYT being very similar it's still very difficult to compare because they're both growing fast; they report at different times of the year; in different currencies; and MYT adopted the Indian accounting changes earlier than needed (I think OPG are waiting until 2018). Wuffle - the reason for MYT appearing to have interest payments greater than operating profit is a $6m exceptional refinancing charge (huge long-term benefit) and the change in Indian accounting, which allows different rates for depreciation and amortisation - resulting in approx. $20m difference on just DA. Underlying PBT was $4.76m (with new Indian accounting standards) or $10.59m (using previous European accounting standards). OPG's PBT should be a healthy +£20m. So OPG definitely wins here! And on that measure I can understand the 4x market cap. over MYT. On new Indian accounting standards, MYT had $362m revenue and $128m EBITDA. On the previous measure it would be $122m revenue and $112m EBITDA. So OPG will get a nice headline when it adopts the new standards! I can only guess at OPG's full year figures. I have very crudely based them on 2x the half year or 30% increase on 2016 based on increased electricity sales in the recent trading update. Please shoot me down for this if you disagree. If I take the higher of the two (to be as fair to OPG as possible) I get much higher revenue for OPG than MYT but lower EBITDA. Current net cash generated from operating activities would also be £80m (if converted from $) for MYT compared with £77m for OPG. Again, please do challenge me on this. OPG would have approx. 30% more cash & cash equivalents than MYT though. This is clearly a very rough estimate. I think my point is that I agree: OPG are undervalued and a bargain at this price - especially with the value today and the dividend. So I'm certainly not trying to put down this share. But I REALLY think MYT is undervalued - especially when it is 1/4 of OPG's market cap. And at the end of 2017/18, MYT will have 1700MW compared with OPG's 940MW. OPG may have a better average tariff though.
Thanks for your replies, Wuffle and Ctw. As I've been looking into OPG more to compare it with MYT, I can certainly see the attractiveness now. I also see a lot of similarities between the two. I think MYT are a little behind OPG in seeing the benefits of the cash flow through (assets built last year need a full monsoon season this year) but they are investing that to race ahead in terms of growth - which brings more debt and more risk. OPG seem to have chosen to deleverage and pursue slower growth. I suppose it depends on the appetite for risk. MYT have always met or exceeded targets so I have every confidence in them reaching 1700MW this year. But I hope they tap the brakes a little after that.
Those are just my recent buys that I've got lucky with (and didn't expect) - I ended up paying 27p on results day. I've bought everything in between since in the 26s and 25s too. And I'm still happy with my buys at 33p at the back end of last year too. I expect that the differences in price will be insignificant in a few years - and probably as soon as the seller has finished. Of course, I could be wrong - it does happen from time to time ;) - and there are plenty of risks (I think we've covered most of them). But, for me, I'm just letting my logic override my feelings. We'll see - I've been very open on here so will either do well or be embarrassed.