Genex Power is constructing Australia’s first pumped hydro project in about 40 years. ESG investing has been a major thematic of 2021, with many brokers now publishing rankings of ESG levels of companies. We take a look at Genex Power, a potentially forgotten ASX Green Energy Stock.
ASX Green Energy Stock – Current State
There’s a long tailwind of renewable energy growth, both as total consumption increases and renewables replace fossils. Wind, solar and other (inc. bioenergy) are growing, and Genex is positioning itself in that super fast-growing space.
There is a report by coaltransitions.org which estimates that coal usage by 2030 will be less than half of what is currently used in Australia and by 2040 this would be less than 90% of current usage. This means that there will be a greater reliance on renewable energy sources and battery storage systems to regulate the demand curve. Renewable energy usage in Australia already makes up around 24% of total supply.
Green Hydrogen has also seemed to be a favourite of ASX investors this year, with Twiggy Forest’s Fortescue Future Industries making a commitment to a $1billion green energy hub in North Queensland.
GNX ASX Share Price
The share price of Genex is up around 35% over the past year to be valued at a current market capitalisation of $246million.
Over the past 5-years, the share price is relatively flat trading only ~15% higher than at IPO, however with a market capitalisation that is significantly higher than the $8million which was raised during the IPO. However, given that the business has a high cost of CAPEX this could be as expected.
You may ask yourself, what do other investors think of Genex shares? After surveying 247 Investors about their current GNX shares sentiment: BUY-HOLD SELL, as well as their target price over the next 12-months here are the results;
The results from this survey show there seems to be a decently strong bullish investor sentiment on GNX.ASX shares.
Genex ASX Fundamentals
|ASX Rank||676 of 2,313|
|NTA per share||$0.13|
GNX ASX Earnings, Debt, and NTA per Share:
We can see GNX shares currently have earnings per share of -$0.031, this indicates that the company does not yet currently make a profit. However, due to the early-stage nature of the company and the high CAPEX, this is not particularly relevant for the group.
Genex Power has just over $196 Million in debt. The group’s debt remains relatively high and is not well covered by earnings. Generally, we like companies with a low-to-no debt, however, this business is outside the box in this regard.
Their Net Tangible Assets per share is $0.13, which represents ~56% of the share price. This seems to be quite high (typically good) compared to other companies of a similar nature such as Transurban or TLS which also have a high CAPEX requirement.
Genex ASX Power Projects
GNX ASX has several projects split across a range of geographies and renewable energy sources. These include projects in pumped-hydro, solar, wind and battery storage to arbitrage prices. The above technology is all proven to work reliably and isn’t some new type of technology that hasn’t been tried and tested.
- 50MW Kidstone Solar Project (Operating)
- 250MW Kidston Pumped Storage Hydro Project (Under Construction)
- 150MW Kidston Wind Project (Development)
- 270MW Kidston Stage Two Solar Project (Feasibility)
- 50MW Large Scale Battery Energy Storage System (Bouldercombe)
- 50MW Jemalong Solar Project (Operating)
The above projects seem to be very long-life assets that should be able to produce reliable income for the company over the asset lifetime. The asset life for the solar projects are listed at around 30-years, whilst the pumped hydro is listed as 80-years.
Genex Power – Kidston Pumped Hydro
The Kidston pumped hydro project is a 270MW energy project which has been in the pipeline for a number of years. The project has been mentioned to have a lifetime of over 80-years, with an agreement by Energy Australia to operate for up to 30-years for a fee. This is estimated to be worth around 50mil in revenue a year for Genex.
The project repurposes an abandoned gold mine to essentially create a battery of stored energy. The idea is to pump energy from the top dam down through a tunnel with a turbine down to a lower dam. This would happen during peak periods with water to be pumped back to the top dam during off-peak periods.
According to a statement from the NAIF, wholesale market energy cost savings estimated at a present value of $500m;
On the 5th of February 2021, the company announced that the QLD Government provided a $147m funding package to support transmission lines to connect the project to the grid. This seems to show a large amount of support the government is willing to put towards the success of the project.
Genex Power Financials
Due to the nature of the business and with a large number of projects, really pre-revenue or under development. Backwards-looking financials may not necessarily help much more than to understand how the company utilises their cash position, funds business and the type of margins that the group expect from developed projects.
From a corporate presentation, the group mention that they currently have full funding for the delivery of up to 350MW of generation.
The group currently only have two project’s which generate revenue, K1 Solar and the Jemalong Solar farm. Both of these projects are 50MW solar systems, meaning that the group as of FY22 should generate over $20million of revenue between the two projects.
From about FY2023 onwards the group should also start generating revenue from the Bouldercombe Battery (this is not included in the below outlook). The Bouldercombe battery is also expected to add an additional ~10mil of revenue a year and would work by storing energy and applying arbitrage principles.
By 2025 the K2-Hydro project should commence the commissioning phase, before generating around $50million per year through a deal with Energy Australia for nearly 30 years. Upon completion of this agreement, Energy Australia may choose to purchase the project for the depreciated book value of the asset.
Other projects such as the Kidman Solar* and Kidman Wind* project are currently in investigation and feasibility stages.
Below is a hypothetical table of potential revenue that may be expected from the company as projects start to come online.
|Kidston Solar (50Mw)||13.3||13||13||13||13||13|
|Jemalong Solar (50MW)||10||8||10||10||10|
|Bouldercome Battery (50MW)||10||10||10||10|
|Kidston Pumped Hydro (250MW)||35||50|
|Kidston Wind (150MW)*||30*|
|Kidston Solar 2 (270MW)*||54*|
The group mentions that they should be able to maintain an EBITDA margin of around 79%. By about FY2025 the group according to their revenue outlook and assuming about $10million revenue for the Bouldercombe battery should generate around $68million of revenue. Applying the groups guided EBITDA margin and an appropriate earnings multiple might be a decent place to start your own DD.
Genex Power Ownership and Insiders
GNX ASX Ownership
The majority of shares in the company are held by the General Public with nearly 58% ownership. This is followed by Institutions, Public Companies and Insiders at 8%.
We generally like companies with large insider ownership. Skin in the game helps ensure the management’s motives are in line with ours. For large-cap companies insider ownership will be lower, 3-5% would be decent in this case, whereas for mid and small-cap companies around 30% would be more favourable.
Due to the high CAPEX nature of the business, the ownership stake of insiders at ~8% seems appropriate. Typically for a small-cap ASX share, we would like to see additional Insider ownership however, this is not always the case due to the needs of different companies.
GNX ASX Top 10 Shareholders
Interestingly the Co-CEO of Atlassian Michael Cannon-Brookes is a substantial shareholder in the company with a 3.27% ownership stake. Mike also has shares in ASX listed TYRO payments with over $528million or 26% ownership of the shares.
The largest single holder in the company is the Japanese company, J-Power (Electric Power Development). J-Power seems to have significant expertise in the delivery and operation of renewable energy projects around the globe.
|10%||Electric Power Development Co., Ltd.||106,990,005||$24.6m|
|8.96%||Paradice Investment Management Pty Ltd.||95,896,852||$22.1m|
|4.07%||First Sentier Investors (Australia) IM Ltd||43,516,520||$10.0m|
|3.33%||Zhefu Holding Group Co., Ltd.||35,678,750||$8.2m|
|2.37%||Mitsubishi UFJ Kokusai Asset Management Co., Ltd.||25,399,789||$5.8m|
|1.74%||Simon R. Kidston||18,594,431||$4.3m|
GNX ASX Recent Insider Transactions
The most recent notable insider transactions have been made by Michael and Simon, both around $0.2 per share back in April 2021.
|06 Apr 21||BuyAU$30,000||Michael Addison||Individual||150,000||AU$0.20|
|06 Apr 21||BuyAU$30,000||Simon R. Kidston||Individual||150,000||AU$0.20|
Should I Buy Genex Power - Prophets Take
Genex Power seems to be close to a pivotal moment in the companies history books, by around 2025 the company will have delivered Australia's first pumped hydro project in over 40 years.
The group according to their corporate presentation have an average annual revenue of $82.5million with 85% of this contracted for nearly 30 years. The group also mentioned that they are expecting an EBITDA margin of nearly 79%. Applying a decent earnings multiple on this may deliver the investor with a rough valuation.
One of the larger worries is further dilution of shareholders shares by the way of any further capital raisings. Whilst the construction of the pumped hydro project is already fully funded there are still risks that may be associated with the construction.
Further dilution may also include sourcing funds for the groups K2-Solar and Wind projects which would also incur significant CAPEX. A recent wind farm located just outside of Warwick will produce 1,026MW at a project cost of around $1.96billion.
Prophet Invest is excited about the prospects of Genex Power, however will continue to monitor price movements for a potential effective entry. (0.13 - 0.88)
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