UPDATED: Infratil shares gain on Australian energy sale, manager books $44m fee

UPDATED: Infratil [NZX: IFT] shares rose to the highest in more than six years on the prospect of a capital return after the A$605 million sale of its Australian energy operations, which will generate a $44 million fee for manager HRL Morrison and Co.

The Wellington-based company sold Lumo Energy and Direct Connect Australia after reviewing its ownership of the assets in May, and the deal is expected to complete at the end of this month, Infratil said in a statement late on Friday. After adjustments for final working capital, Infratil estimates net proceeds of between $646 million and $664 million, reflecting a gain on sale of between $343 million and $361 million. Sale costs are estimated to be $57 million, including the fee to Morrison & Co.

Shares of Infratil rose as high as $2.66, the highest since January 2008, and were recently up 6.6 percent to $2.65. The stock has gained some 9.5 percent since the start of the year, and is rated an average 'buy', according to six analysts surveyed by Reuters, with a median price target of $2.84.

The sale was at the mid-to-upper end of market expectation, although "there had been some eyebrows raised at the very significant fees that go to Morrison & Co," Matthew Goodson, managing director of Salt Funds Management said. Infratil has a history of aggressive on-market share buybacks, but might use the cash for further acquisitions, he said.

"At the moment, particularly in Australia, there do appear to be a vast number of potential infrastructure deals to be done," Goodson said. "Bidding for those assets is extremely aggressive at present, given how interest rates are very low around the world, so it isn't easy to buy these assets."

An institutional investor, who asked not to be named, told BusinessDesk the management fee diluted the value of the sale and they questioned whether the company would pass on profit from the sale to smaller shareholders.

Infratil chief executive Marko Bogoievski said the company would assess a "full suite of capital management alternatives against ongoing opportunities for new investment," in Friday's statement.

Lumo is the fourth biggest participant in the National Electricity Market with 540,000 customers in Victoria, South Australia, New South Wales and Queensland, while Direct Connect provides exclusive relationships with 3,200 real estate agents across Australia. Infratil bought the Australian businesses in 2004.

Snowy Hydro will become Australia's fourth biggest integrated electricity generator and retailer, with almost one million customers. The Australian company owns and operates the 3,950 megawatt Snowy Mountains hydro-scheme, and Victoria's 300MW Valley Power gas-fired station and 320MW Laverton North gas-fired plant. It also owns electricity and gas retailer Red Energy, with 400,000 customers in Victoria, South Australia and NSW.

(BusinessDesk)

EARLIER 8am: Infratil [NZX: IFT], the infrastructure investor, has sold its Australian energy assets to Snowy Hydro for A$605 million, plus an adjustment for final working capital.

The Wellington-based company sold Lumo Energy and Direct Connect Australia after reviewing its ownership of the assets in May, and the deal is expected to complete at the end of this month, Infratil said in a statement late on Friday. It estimates net proceeds of between $646 million and $664 million, reflecting a gain on sale of between $343 million and $361 million. Sale costs are estimated to be $57 million, including a $44 million fee to Infratil's manager, HRL Morrison & Co.

"The sale of the Infratil Energy Australia assets and the recent divestment of Z Energy both show the strength and flexibility of Infratil's operationally-focused model," chief executive Marko Bogoievski said. "Following completion Infratil will assess the full suite of capital management alternatives against ongoing opportunities for new investment."

Lumo is the fourth biggest participant in the National Electricity Market with 540,00 customers in Victoria, South Australia, New South Wales and Queensland, while Direct Connect provides exclusive relationships with 3,200 real estate agents across Australia.

Snowy Hydro will become Australia's fourth biggest integrated electricity generator and retailer, with almost one million customers. The Australian company owns and operates the 3,950 megawatt Snowy Mountains hydro-scheme, and Victoria's 300MW Valley Power gas-fired station and 320MW Laverton North gas-fired plant. It also owns electricity and gas retailer Red Energy, with 400,000 customers in Victoria, South Australia and NSW.

Shares of Infratil fell 0.6 percent to $2.485 on Friday, and have gained 9.5 percent this year, outpacing the 6.8 percent gain on the NZX All Index over the same period.

(BusinessDesk)