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OPG Power eyes further expansion as interims impress

Last updated: 05:33 01 Dec 2015 EST, First published: 06:37 01 Dec 2015 EST

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OPG's expansion may accelerate under plans outlined earlier.

---ADDS BROKER COMMENTS---

First half results from India-focused OPG Power Ventures (LON:OPG) revealed the real and positive financial impact of its expansion on the sub-continent.

Underlying pre-tax profits advanced 46% in the six months ended September to £15mln, while the operating margin increase by five percentage points to 41%. At the same time earnings per share grew 52%, while gearing (debt levels) were down three points at 59%. A loan repayment of £13mln was made, while net debt at the period-end was just under £243mln.

The results were achieved against a backdrop of increased output with operating capacity more than doubled year on year to 600 megawatts (Mw) and set to grow to 750 megawatts ‘imminently’.

OPG has power stations in Gujarat State and Chennai, Tamil Nadu, and it has a mix of higher tariff contracts with industry customers.

The company is looking at a ‘pipeline’ of further projects, but restated its commitment to “introducing dividend policy”.

OPG said it had recently signed two separate non-binding memoranda of understanding to develop 1,500 megawatts of renewable projects along-with two high-efficiency thermal projects with a total capacity of 2,700 megawatts. 

“These could be potentially exciting developments,” OPG said in a statement accompanying results. “The company will evaluate these potential projects and will update the market should any of the projects proceed.

“Part of the analysis of any project will include ensuring that the optimum funding structure for OPG is implemented, given the company's forecast cash generation alongside the board's intention to initiate a dividend.”  

House broker Cenkos said it was a strong set of interim results from OPG, demonstrating an increase in production, revenue and earnings.

“The second 150Mw plant at Gujarat remains on track to commence commercial operations and the group has disclosed further details for the next phase of its development with a pipeline of 4,200Mw of thermal and renewable energy projects,” the broker noted.

Cenkos said its full-year forecasts remain under review as it has yet to plug the half-year numbers into its financial model, but noted that management has indicated the company remains on track to meet consensus earnings forecasts.

“OPG’s interims come with news on the transmission line that will allow the second unit at the Gujarat project to export power. This is now connected and synchronised, de-risking the target for commercial operations in January 2016.

Cantor Fitzgerald, meanwhile, said the interim results follow the output data given in the trading update on 5 November and show continued progress and October output has been comfortably strong, with the added bonus of news on the transmission line that will allow the second unit at the Gujarat project to export power.

“This is now connected and synchronised, de-risking the target for commercial operations in January 2016,” the broker said, as it reiterated its 'buy' recommendation and target price of 134p.

OPG shares were unchanged in mid-morning trading.

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