Beaufort Securities Buy Rec5 Dec 2013 08:13
Our view: While yesterday's news caused a minor downward 'kneejerk' reaction to the share price, our stance and price target on Infinis remains unchanged. Beaufort continues to recommend the shares as a 'BUY' for income investors (remember, we forecast a 2014 yield of 7.2% based on current share price), with a price target of 300p/share. Although the exact timing was uncertain, yesterday's news simply detailed the fact that subsidy levels were being examined through a continuing consultation and that a cut will likely be proposed by Decc in 2015. These will possibly become effective for fiscal 2016/17. Realistically this could mean the support level is reduced from £95/MWh to, say, £90/MWh. Infinis's business model is highly robust and such proposals have already been more than anticipated in its long-term planning. Infinis has a substantial onshore wind project pipeline of c.600MW at various stages of development. Of this, it targets the addition of 130-150MW of onshore wind capacity over the next three financial years, with major sites already fully permissioned in Scotland. In expectation of the latter being 'grandfathered' on existing legislation, visibility remains excellent. Indeed, Beaufort's model for Infinis suggests the Group will be throwing off significant amounts of cash by 2017, to the extent that it could even have the option of distributing special dividend payments in addition to the generous annual payment. Other options more rigorously paying down Group debt, acquisitions or, perhaps, even participating in one of the government-favoured offshore wind projects. The scale of offshore wind projects tend to be so large that they are completed by partnerships or in consortiums. This would be something of a change for Infinis which, in the past, has preferred to wholly own-operate its own generation. While there are no such plans presently afoot, the Group certainly will have the scale to consider such participation by 2018.