Reported revenues increased by almost a third to €27.9m (£23.19m) and adjusted cash profits jumped by half to €24.6m, buoyed by a near 75 per cent increase in operating capacity from 244MW to 426MW. The group invested €118m in operating capacity in the six-month period and expect a further ramp up in output in the second half to end March to take capacity to well over 600MW by the next monsoon season.
Moreover, with £100m of new funding in place following the investment in Greenko Mauritius by an affiliate of the government of Singapore Investment Corporation (SIC), one of the world's leading sovereign wealth funds, Greenko is now targeting 2,000MW of operating capacity in 2018, double the target for 2015. It’s realistic as Greenko has 608MW of projects under construction, and a further 1,337MW in active development, so is clearly making strong progress towards achieving that 2,000MW target.
Expect some positive newsflow on this front too. Analyst Adam Forsyth at broking house Arden Partners expects "the second half of the current year to be dominated by project completions with units at Mangalore, Basvanbagewadi and Balavenkatpuram all expected to commission before the financial year end adding 114MW." Furthermore, with the addition of further units at Basvanbagewadi and Balavenkatpuram in the spring, Mr Forsyth expects Greenko to have "at least 643MW in place before the start of the 2014 monsoon." In turn, earnings forecasts look well underpinned even after factoring a seasonal first half weighting to the numbers as wind and southern hydro projects benefit from the monsoon in that period.
Arden Partners currently forecasts that Greenko's revenues will rise from €36m to €50m in the financial year to March 2014 to boost adjusted operating profits from €16.3m to €29.6m. Revenues and profits are forecast to increase to €91m and €60.5m the year after. On that basis, EPS almost trebles from 5.4¢ in the 12 months to March 2013 to 15.4¢ in the 12 months to March 2015. This means that at current exchange rates Greenko shares are trading on only 11.5 times earnings estimates for the financial year to March 2015. And if Greenko can hit these targets over the next 15 months, as seems realistic given it has both funding and a development pipeline in place, then it is only reasonable to assume that the share price will start to reflect the upside that the SIC clearly sees in the revenue-generating potential of the power generation assets.
Mr Forsyth also points out that all of Greenko's renewable projects can achieve grid parity, the point at which they do not rely on state subsidies to turn a profit. In fact, due to the relatively high cost of coal in India, the cost of wind and hydro generation projects is below that of coal fired projects. In turn, this places the company in a far better position than other developers of renewable projects in other parts of the globe, not to mention an enviable position too.
True, Greenko shares have yet to hits the heights I expected when I initiated coverage when the price was 138.5p ('Buy signal flashing green', 18 Mar 2013). However, with capacity ramping up and driving up profits, the case to invest remains as strong as it was when I first highlighted the company’s potential.
Target prices
As I have noted previously, Mr Forsyth values Greenko at 245p a share and has pointed out that "there is considerable potential in the shares and the prospect of more project completions should drive newsflow in the remaining financial year". I agree, and priced on a bid-offer spread of 144p-148p, I continue to see significant medium-term upside in the shares and maintain my 200p target price. Buy.
Finally, due to unprecedented demand, my new book, Stock Picking for Profit, has sold out and is being reprinted for delivery the week commencing Monday, 6 January 2014. As a special promotion to IC readers, the first 100 pre-orders for the book placed online with YPD Books and quoting offer code ‘ICOFFER’ will receive complimentary postage and packaging. The book can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213. The book is only being sold through YPDBooks and no other source. It is priced at £14.99, plus £2.75 postage and packaging. Telephone orders will continue to incur the £2.75 charge.
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■ Bovis Homes ('Bovis poised for chart break-out', 28 Nov 2013)
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■ PV Crystalox Solar ('Cash rich and undervalued', 2 December 2013)
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■ Housing market ('Allaying fears of housing myths', 3 December 2013)
■ Dragon Ukrainian Properties ('Ukrainian nigntmare tames the dragon', 4 December 2013)
■ Conygar ('A smart regional property play', 4 December 2013)
