Sunday, 22 June 2014

THOUGHTS: Infinis Energy--An Excellent Green Opportunity?

I have watched the renewable energy company, Infinis Energy (LON:INFI), very soon after its IPO in November 2013. It strikes me as a very interesting prospect for a green energy investment due to its
particular focus and undeniable size.

Of course, with the green subsidies getting a hammering in the recent energy price debate some have begun to see such companies as a little too risky for their taste at the moment. I myself felt much the same about it and started to watch it less intensely (especially after picking up SSE which includes a significant amount of renewable power in its energy portfolio).

However, now it is back in my sights since reading a post on the DIY Income Investor's site earlier this month. On a fresh look I found yet more which was very interesting.

Big Landfill Gas Operations

This is one of my favourite things about Infinis. A large part of its power and indeed income is derived from extracting the gas from landfill sites and then pushing it into the National Grid. They currently hold 40% of the market share in this form of energy production.

Naturally, we produce an inordinate amount of waste and although we are seeking to reduce it going forward it is--as far as I can tell--going to be nigh on impossible to remove it altogether (even early very much "in touch with nature" man produced waste of some note).

The beauty of this type of energy production is that it is a green double whammy. First, it reduces the amount of methane (which is more than 20 times worse than CO2 as a greenhouse gas) leaving landfill. Second, that methane is used to power our huge energy requirements.

This is particularly important as windfarm "intermittency" (i.e. lower energy production during unfavourable weather) means that more conventional gas, coal etc. energy systems are still required.*

Windfarms and Hydroelectric

Infinis also are involved with onshore windfarms and hydroelectric. Windfarms remains their second biggest energy producer (and they are expanding); hydroelectric a lowly third. Nonetheless, this shows a bit more of a diversified energy production model.

The Numbers: EPS

So what about the numbers?

For the year to March 2014 Infinis declared an earnings per share (EPS) value of 13.7p. This was up 52.4% on the 9p of the year before. That is pretty good growth. 

But what about the dividend? Often seen as the critical benefit of utilities.

The Numbers: Dividend

The dividend looks very good indeed. This is what their preliminary results stated:

The Directors propose a dividend from the date of Admission to trading on the LSE to our financial year end of £19.9 million (6.63 pence per share). The dividend will be payable to shareholders on 28 August 2014 following approval at the Company’s Annual General Meeting. The dividend is in line on a pro rata basis with the dividend policy outlined at the time of the IPO of £55 million for the first full financial year ending 31 March 2015 and increasing from that point at least in line with inflation. 
That means anyone holding shares on 30 July will be in line for 6.63p per share from the outset. On the 241.5p share price on Friday that is a 2.6% return even in a non-full year.

The £55 million payout would result, according to their report, to a dividend of 18.33p per share for the full 2015. This would offer just shy of a 7.6% yield for the year coming.

This all looks more than excellent, of course, well above the average dividend yield and even above the traditional utilities.

A Worry?

Of course, this raises a question. If the EPS for this year was 13.7p then clearly without a significant EPS growth the 18.33p dividend will not be covered.

If we presume a similar EPS growth rate, however, of say 50% going forward then the EPS should go above 20p which does--if barely--cover the dividend. However, I have not seen any EPS predictions as yet for 2015.

On the plus side the earnings do appear to be growing at a very healthy rate. Their EBITDA was £100 million in March 2011, £125 million in March 2013 and £148.4 million in March 2014. That is an increase of 48.4% since 2011 and an 18.7% increase in the last year.

What do you think?

Infinis is very tempting at the moment. Over the next month or so I plan to keep a sharp eye on the share and see if any predictions emerge which make me think it would be foolish to miss.

Has anyone else recently bought into Infinis recently? Are you planning to do so soon? Have you seen any predictions worthy or note? 


* There is an excellent blog discussion on The Guardian website on whether or not windfarms work. Well worth a read. It clarifies several myths. 

No comments:

Post a Comment