OPG Power Ventures (BUY) – Technical changes to resolve Gujarat payments

OPG LN (49.25p, TP 124p), Market Cap: £173m
Our view: OPG has announced what is essentially a technical change that will allow it to continue its Group Captive sales arrangements at Gujarat in a way more suited to the local distribution companies’ preferences. In doing so this should prevent the delay of certain revenues in future and expedite sums delayed to date. The company says that the solution will not impact group cashflows and we are not changing our forecasts in line with this guidance. We reiterate our BUY recommendation and target price of 124p.

• Addressing payment delays at Gujarat – OPG has announced that it is amending the share capital rights of the subsidiary that owns the 300MW Gujarat power plant. This is in order to expedite certain payments that are being delayed by the local distribution companies. A small element of the revenue from Gujarat has been collected directly by these companies with whom OPG has been in extensive dialogue.  The company expects these changes to be an important element to resolving the payment delays.
• No impact on consolidated results, cashflows or dividend – As with all OPG projects, the output is sold under Group Captive regulations. These allow direct sales to industrial customer but these customers are required to control 26% of the project. To date, OPG Gujarat has used different classes of shares to give the customers the required interest but the economic interest is 99% with OPG. The company says that the changes will ultimately be neutral in terms of the parent’s reported earnings per share indicating that the subsidiary’s contribution to OPG’s earnings will be preserved. The amendment will not impact OPG’s consolidated post tax results or consolidated cashflows and company also does not expected the dividend to be affected by these changes.
• Valuation unchanged at 124p – We value the company at 124p. We use a DCF approach for valuation based on a cost of equity of 15% and cost of debt of 12.5%. The key risks to our valuation going forward now lie in fully optimising the commercial returns from the operating capacity and in reinvestment of the likely cashflows.

Leclanché (BUY) – Making progress
LECN SW (CHF 2.7, TP CHF 4.8), Market Cap: €130.2m
(Corporate Stock)
Leclanché’s full year results reflect the relatively early growth stage of the company. Revenue was in line with earlier guidance but EBITDA losses and interest were behind of our forecasts reflecting growth investment which can already be seen to be yielding results. The underlying performance at the segmental level, especially in stationery storage, was ahead of our forecast. The company remains on track to see EBITDA in positive territory in FY 2018 and we reiterate our BUY recommendation and target price of CHF 4.8.