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Genex Power IPO Investors Should Hold a Speculative Appetite

Genex Power IPO Investors Should Hold a Speculative Appetite
Jul 06, 2015 By Tim Morris

Genex Power Ltd (ASX:GNX) is scheduled to list on 8th July 2015

The National Electricity Market (NEM) operates the world’s longest interconnected power systems between Port Douglas, Queensland and Port Lincoln, South Australia with an end-to-end distance of more than 5000 kilometres. Its formation in 1998 provided a major catalyst for investment into the industry, with power generation capacity amongst the eastern states rising by more than a third over subsequent years.

Impetus for further investment has since reached a standstill. A combination of shifting energy policy and declining consumption last year prompted the Australian Energy Market Operator to declare the NEM’s installed capacity to be sufficient for the next decade. Amid constrained expansion options, power industry participants may therefore direct surplus capital toward portfolio rebalancing and efficiency programs. The coming listing of Genex Power aims to harness this potential in Queensland, where for the past ten year’s, electricity futures prices have been approximately 60 per cent more volatile than equivalent contracts in New South Wales and Victoria.

Genex Power’s principal asset is the Kidston Project in Northern Queensland, where the suitability for a hydroelectric power development is being evaluated. The Kidston Project incorporates a disused mine site closed in 2001. Genex holds a mining lease, environmental authority, and water license over the site, which includes two large water reservoirs, roads, and a grid power connection. Genex is considering the Kidston Project’s potential to host a 330MW pumped storage hydro scheme suppling regional peak power demands.

Impetus for investment is driven by such a development’s potential to mitigate against elevated power price volatility in Queensland, and the reliance of its north on imported power from central parts of the state. Proceeds from the float are being directed to a feasibility study and ongoing site management. Prior to completion of the feasibility study in 2016, a Power Purchase Agreement is being pursued this year, which may drive interest in the stock.

However with capital costs for the Kidston Project estimated to be $282million, Genex Power’s capacity to attract and service debt finance is the principal value driver for investors in the float. Pre IPO support from Zhenfu, one of the largest hydroelectric electrical and mechanical equipment manufacturers in China is an encouraging sign, although participants in the offer should hold a speculative appetite.

Company: Genex Power Ltd
ASX Code: GNX
Shares on Offer: 40m + loyalty options
Listing Price: $0.20
Market Capitalisation: $31.7million
Listing Date: July 8th  

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Tim Morris Author: Tim Morris Jul 06, 2015

Having studied Commerce and Science at the University of New South Wales, Tim began his career in an analytical capacity with Wise-owl. Tim has conducted over 500 corporate valuations and appraisals, specialising in pre revenue assets and emerging markets. For the last five years, his Equity Capital Market insights have been featured as part of a weekly column in The Australian and regularly features on Sky News, CNBC, ABC and Bloomberg TV.

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