TSX runs higher on rate cut expectations
Investing.com -- Jefferies has upgraded VH Global Energy Infrastructure (LON:ENRGV) to “buy” from “hold” in a note dated Monday, citing new transactional evidence that supports the near-term sale of key assets in Brazil and the United States.
The analysts noted that about 62% of the company’s portfolio, comprising Brazilian hydro and solar assets and a U.S. terminal storage asset, could potentially be realized soon, making a wind-down strategy more attractive.
Jefferies estimated that the proposed asset realisation plan could deliver double-digit internal rates of return, driven by the company’s 32.7% discount to net asset value.
According to the report, the U.K.-based company’s Brazilian hydro asset is priced much below recent market transactions, while the U.S. terminal storage asset is valued above peers, indicating room for adjustment.
The hydro facility, Mascarenhas, is currently valued at £496,000 per megawatt, compared with an average of £757,000 based on comparable deals.
Jefferies said this suggests the asset is conservatively valued, with an upside potential of about £52 million if adjusted to market benchmarks.
In contrast, the solar portfolio in Brazil may be overvalued, with current figures 10% higher than the average of recent transactions, translating to a potential markdown of £4 million.
The U.S. terminal storage asset was another focus in Jefferies’ assessment. It is currently marked at an 11.9x FY24 EBITDA multiple, above the 10.8x average for listed peers and higher than the 9.6x used in ONEOK’s recent acquisition of EnLink.
Adjusting for this, the analysts reduced the valuation by £26 million. Even with this revision, the combined adjusted valuation of these three assets still increased by 9%, reaching £275 million from the current £254 million.
Beyond these assets, the remainder of the portfolio includes holdings in the UK, Australia, and Europe.
These are either under construction or in less active merger and acquisition markets and are therefore expected to be sold at a later stage.
However, even if these assets are disposed of at various levels of discount and over different timelines, the overall returns remain favorable.
Jefferies’ IRR model shows that the company could generate returns upwards of 16%, even in conservative exit scenarios.
The timeline for shareholder action is also in view. A circular outlining the asset realisation strategy is expected in July, followed by a shareholder vote in August.
Jefferies emphasized that its investment thesis is contingent on the wind-down proceeding; a continuation of the existing strategy would nullify the current outlook.