In my opinion, the derating is not only overdone, but is wholly unwarranted as the investment case is far stronger now than it was when I initiated coverage last year. In fact, with the company growing its operating capacity by 45 per cent to 715MW in the six months to end September 2014, and the pipeline of new wind and hydro projects fully funded and under construction, I am pretty confident Greenko will hit its 1,000MW target next year. Greenko currently has 590MW of projects in construction and 1,350MW in active development. Clearly the company's board is confident: following an accounting change in the financial year-end to 31 December, the board intend declaring a maiden dividend at the time of the year-end results. Analyst Adam Forsyth at broking house Arden Partners predicts a first payout of 2.5¢ a share (1.6p).
The interim results themselves were impressive enough: generation surged by 87 per cent to 1,225 Gwh on the same six-month period in 2013 which had the effect of more than doubling revenue from $36.6m to $82.7m. This translated into a 125 per cent hike in cash profits to $74m. And Mr Forsyth expects this progress to continue, pencilling in revenues of $97m for the nine months to end December (turnover is first half weighted due to the monsoon season) to produce adjusted pre-tax profits of $30m (up from $17.8m for the 12 months to end March 2014) and EPS of 10.1¢.
Powering on up
But it's next fiscal year when the revenues and profits will see a marked step change. For calendar 2015, Arden Partners expect revenues to power up to $185m to generate adjusted pre-tax profits of $61m and EPS of 22.4¢. On this basis, the shares are priced on 9.5 times 2015 earnings estimates.
Importantly, after factoring in borrowings - Greenko successfully refinanced its debt facilities by issuing a US$550m (£350m) five-year bond on the Singapore Stock Exchange on an 8 per cent coupon and secured a US$125m (£80m) commitment for the next six years from EIG Global Energy Partners - the company is hardly highly rated either.
Analysts predict Greenko will have net debt of $723m at the end of this month, rising to $961m in 12 months time. Based on 156m shares in issue, valuing Greenko's equity at $330m (£210m), this means that the company has an enterprise value of $1.05bn (£750m) or 8 times forecast operating profit of $125m for 2015. That's hardly a punchy valuation considering the build out timetable of new projects means that revenues have a very realistic chance of rising a further 50 per cent to $271m in 2016 to drive up operating profit to $195m. On this basis, the company is being valued on just seven times 2016 operating profits to its enterprise value factoring in forecast net borrowings of $1.07bn at the December 2016 year-end. For a company fully funded, and targeting total capacity of 2,000MW, these multiples are attractive given the growth rate in earnings and return on capital employed. Invesco and Arden Partners have target prices of 310p and 300p, respectively, or more than double the current share price.
Importantly, the energy back drop is favourable for renewable energy in India as conventional power assets struggle to supply power to the grid due to fuel supply and off-take price issues. Greenko also has a cost advantage and is supplying power below the price of conventional generation in many states of India.
I last updated my view in advance of last week's interim results when the price was 139p ('Green light for Greenko', 29 October 2014), and I continue to rate Greenko shares a buy and maintain a target price in the range 225p to 230p.
KBC record contract win
There has been a significant amount of negativity on the oil sector since the summer, reflecting the 33 per cent fall in the oil price since mid-June. Shares in all oil companies have been very weak in this time and the Aim-traded share price of KBC Advanced Technologies (KBC: 89p), a consultancy and software provider to the global hydrocarbon processing industry, has suffered from the fall-out.
But the company continues to win new contracts. In fact, only last week KBC announced a two-year contract award from a South American oil and gas company. The contract is worth more than US$48.6m (£31m) and extends the current contractual relationship to 2018. It's the third largest contract in the history of the company and "underpins 2015 revenue forecasts and beyond".
The respective analysts' forecasts for 2015 are for revenues of £74.9m and cash profits of £11m. On an adjusted basis, Equity Development expects pre-tax profit to rise from £8.4m in 2013, to £9.2m in 2014 and £10.5m in 2015. House broker Cenkos Securities has identical pre-tax forecasts. So after factoring in net funds equating to 20 per cent of KBC's market value of £71m, this means the company is being valued on only five times cash profits to its enterprise value, or on only 8 times cash adjusted EPS for 2015. Even after factoring in the weak oil price environment, this seems an extremely low rating to me. And it's not as if the company is suffering from contract terminations. In fact, it continues to win new business which is supportive of the investment case.
At 89p, the shares are still up on my original buy recommendation of 69p ('Fuelled for growth', 5 May 2013), but are down on when I last updated the investment case at 105p ('Contract win boosts KBC', 25 September 2014). I maintain my buy recommendation.
Tech that and rally
Aim-traded Amino Technologies (AMO: 125p), the Cambridge-based set-top box designer of digital entertainment systems for IPTV, home multimedia and products that deliver content over the open internet, is on course to beat analysts' earnings estimates.
Analyst Andrew Darley at broking house FinnCap had expected Amino to report EPS of 7.4p for the 12 months to end November 2014, up from 6.3p in 2013, but has now lifted this to 7.8p. He has also upgraded his fiscal 2015 forecasts by over 10 per cent, predicting EPS of 8.2p, and raised his price target from 133p to 150p. And with cash generation strong, net funds have risen by £1.3m to £20.8m, or the equivalent of 40p a share, and that's after taking into consideration £1.4m of share buy backs. Strip net cash out from the current share price, and Amino shares are trading on only 10 times fiscal 2015 earnings estimates. They are also underpinned by a progressive dividend policy: Amino's board has committed to raising the dividend by 15 per cent to 4p a share for the year just ended and by at least 10 per cent for the next two financial years. Analysts at Northland Capital predict a payout of 4.56p for the 2015 fiscal year, implying a prospective yield of 3.63 per cent.
So, although Amino's shares have done well since I advised buying at 83p ('Set up for a buying opportunity', 10 June 2013), and have hit my 120p year-end target price, underpinned by strong contract momentum, there is potential for the rerating to continue. I would therefore run your profits. I last updated my view when the price was 112p four weeks ago ('Wired up for gains', 11 November 2014).
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