EUR 850.00 For Business Accounts Only

Morningstar | Infratil Upgrades Guidance at 1H Result; No Change to FVE

Narrow-moat Infratil's first-half fiscal 2019 EBITDA increased 19% to NZD 339 million, mainly on one-off gains and revaluations. Underlying performance appears solid, with some well-performing assets offsetting weakness elsewhere. Three of the smaller businesses are likely to be sold in 2019, narrowing the focus more in line with Infratil's core themes of renewable energy, data centres and retirement living. Fiscal 2019 guidance was upgraded again, this time to NZD 580 to 620 million. We upgrade our fiscal 2019 EBITDA forecast 8% to NZD 606 million, but longer-term forecasts are largely unchanged, and we remain comfortable with our NZD 3.10 fair value estimate. Infratil is currently trading 13% above our fair value.

Trustpower performed well thanks to hydrogeneration remaining 6% above average, but not as well as the first-half 2018 which benefited from even more favourable rainfall. As such, EBITDA fell 15% to NZD 130 million. Refer to our recent note on Trustpower for more details.

Tilt Renewables also benefited from favourable generation conditions, with above-average wind, and start of the Salt Creek wind farm, driving EBITDA up 36% to AUD 67 million. The large Dundonnell wind farm project in Victoria will proceed, with construction starting in early 2019 and finishing by September 2020. The vast majority of its output is underpinned by government support and a 15-year commercial offtake contract, reducing risk. As at  Nov. 9, the Infratil-led consortium owned 84.19% of Tilt, and refuses to lift the takeover price despite Tilt directors rejecting the offer. It will be interesting to see if Infratil can get over the 90% threshold for compulsory acquisition.

Canberra Data Centres' EBITDA increased 60% to NZD 30 million, though was flattered by a noncash valuation uplift. Nonetheless, the business is performing well with a current EBITDA run-rate of AUD 71 million and on track to deliver EBITDA of AUD 110 to 120 million in 2020. The Fyshwick 2 development will complete in late 2018, with more than 50% of capacity already contracted. This, and the Hume 4 development, underpin the outlook for ongoing strong earnings growth in the medium term.

Wellington Airport EBITDA increased 5% to NZD 50 million on 4.7% growth in passengers. The multilevel transport hub development completed, and the Rydges Hotel is nearly finished. There doesn’t appear to be much progress on getting approval to extend the runway, but we continue to think it will succeed eventually. The extension will allow the airport to accommodate larger, longer distance aircraft and thus support long-term passenger growth.

NZ Bus performed poorly, as expected. EBITDA fell 26% to NZD 13 million, or NZD 16 million after adjusting for recontracting costs and the lag of higher fuel costs. The strategic review of NZ Bus should complete in by March 2019. A sale is the best option in our opinion, depending on price. This is a small noncore business lacking sustainable competitive advantages. A sale would allow net proceeds and management effort to be refocused in more prospective areas.

RetireAustralia was weak, with underlying profit falling 67% to AUD 9 million because of major headwinds in the retirement industry and timing of new unit deliveries. Deferred management fees fell 63% to AUD 7 million because of the weakening housing market. Retirement is one of Infratil's core investment themes, though we're less enamoured with this cyclical industry with high exposure to volatile house prices.

Longroad reported EBITDA of NZD 51 million compared with a small loss in the previous corresponding period, or pcp, mainly due to a gain from the sale of the Phoebe solar farm project. Construction on the USD 300 million Rio Bravo wind farm has started, with completion scheduled for mid-2019. This business has a large pipeline of renewable energy developments in the U.S. to progress as conditions warrant.

Perth Energy managed an impressive turnaround, reporting EBITDA of AUD 23 million versus a small loss in the pcp. The turnaround mainly stemmed from passing higher wholesale prices through to retail customers. This business is also likely to be sold next year.

Continuing that theme, the Australian student accommodation business is also up for sale having fallen below Infratil's expectations for expansion to other universities. First-half EBITDA was down 7% to NZD 5.5 million.