Analysis of SP Ausnet Part 2

It is observed from the 2h 2009/2010 interim report that Sp Ausnet has the following strong stable characteristics:

· 86% of revenues are regulated

· 100% of regulated revenues locked in until 2011; 62% locked in until 2013

· Prudent gearing & 99% of debt hedged against movements in interest rates

· ‘A’range credit rating enables access to competitive finance

· Distributions & maintenance capexpaid from operating cashflows

Performances over several quarters are also encouraging:

SP Ausnet has delivered steady dividends since listing. Table D below depicts the dividend payouts since listing

Table D

There was a drop in the dividend issued for 2010 (interim dividend) due to a dilution of equity. In June 2009, SP AusNet successfully completed an accelerated non-renounceable entitlement offer (1 for 4 offer@$0.86) raising a total of $408.4 million. Moreover, due to dividend reinvestment plan, more dilution will occur as the number of outstanding shares increase. Investors have a choice of cash or script dividends.

At current price of SGD$1.14, SP Ausnet provides a decent yield of 8.8% (A$1 to SGD$1.25) before taxes. It is also below its NAV of SGD$1.28, hence investors can purchase SP Ausnet below its IPO (offer adjusted) and NAV price.

Investors can also opt for script dividend which will enable him to accumulate more of SP Ausnet at a 2.5% discount.

Analysis of SP Ausnet Part 1

Background of SP Ausnet (Source: http://www.sp-ausnet.com.au and http://www.singaporepower.com.sg/)

SP Ausnet is a subsidiary of Singapore Power (with a 51% controlling stake) and its operations are managed by staff of Singapore Power in Australia. Singapore Power is a leading energy utility company in the Asia Pacific.

With assets of S$26.3 billion at end March 2009, it is one of the largest corporations in Singapore. It owns and operates electricity and gas transmission and distribution businesses.

SP Ausnet owns and operates electricity transmission and distribution networks and gas distribution assets in Victoria, Australia. It delivers a full range of energy related products and services to more than a million industrial and domestic customers. It was listed on SGX at $1.75 per share in Dec 2005. It current trades at $1.14 a share (03/02/10).

Electricity transmission network – carrying electricity from power stations to electricity distributors across all of Victoria via 12,800 high voltage towers and approximately 6,500 kilometres of transmission lines.

Electricity distribution network – carrying electricity from the high voltage transmission grid to over 600,000 customers across eastern Victoria. This network spans approximately 46,000 kilometres across an area of 80,000 square kilometres.

Gas distribution network – transporting gas to approximately 537,000 customers across central and western Victoria. This network spans approximately 9,400 kilometres across an area of 60,000 square kilometres.

In a nutshell, SP Ausnet derives its income from the follow sources (Figure 1):

SP Ausnet has achieved commendable revenue and EBITDA growth over the last 2 quarters. Below is a screen shot (Figure 2) of its latest 1H 2009/2010 financial highlights:

Part 2 will be devoted on the revenue characteristics of SP Ausnet