Previous Close: 60.75p* (real time prices at ADVFN) Previous Range:64.25 - 64.25* Previous Volume:25889 shares (down on average)* Trading:above the 50 day M.A. (60.0286) & below the 200 day M.A. (62.368)*
OldBoffy & Gallant thank you for your responses they have been very helpful. This morning I've read through all the comments on this board since early 2012 and it's been a very interesting and enlightening read - especially some of the predictions as to where the SP would be by now!
I also see that 50%+ of OPG is owned by the directors (and related) which to me is excellent indeed.
Another reason for the fall in 2011 was that the Company was hyped up in the early days but the plants took longer to deliver than originally forecast. Since then the building programme has been excellent as have the operational aspects.
As previous posts have said actual level of profitability is now in the hands, to a large extent, of international currencies.
I have been a long term fan of the Company. I like old technology (updated to handle different sorts of coal), medium to long term needs (the indian power market has a long way to go before it meets demand) and a democratic government.
The Company has been wise to generate the cash flow before embarking on the next phase - remember their commitment to 1250 mw not to mention the MOU with Gujarat. We might hear something about Bellary soon? By OldBoffy
Arcane, thanks for your kind comments and agree on GBO.
You miss the point with the OPG p/e, it is based on historic profits (they don't update on interims) so only appears high, but knowing that profits are trebling then the forward multiple is below 10x, cheap given the growth story and track record.
Furthermore, knowing that the market prices on forward earnings and knowing that capacity trebles next year, one can predict that if the market applies a 25x multiple once year-end figures are out then the price should more than double - as I said in an earlier post, it's simple maths!
Don't dally or you could miss the boat, hence my trying to time a partial switch from GBO (only for a better spread of my portfolio, I see GBO doubling in 12 mths also...) By gallant02
This does look like an excellent company. P/E is a little to high for me at the moment and also most of my capital is tied into GBO. If SP hits 50, P/E of 20ish I would definitely want to build a stake in OPG for the medium term at least.
On a side note, I have the same hopes for GBO as you do Gallant and hopefully the floating of Good Technology will give GBO the much deserved boost to its true value.
Arcane, you are very welcome. I am pleased that you saw me as a tipster with good intentions rather than a ramper, which many accused me of being...
A key factor that also attracted me, mindful that director selling is seen as a negative influence (eg GBO), the CEO and principal shareholder in OPG provides his personal guarantee to support the company's borrowing - I see that as a real demonstration of faith in one's business model.
DYOR, naturally, and best of luck. As an aside I'm hopeful that GBO's next trading statement will send the shares rocketing and that I time it right to switch some over to OPG before these start rising too much. Best laid plans and all that.... By gallant02
Thanks JJHB, it's nice to be in a position to be debating when and not if we'll get a quantum uplift in the sp...!
My more relaxed stance on delivery is because I'd understood that the plants are modular, and therefore the perceived operational demands of a 75mw vs 300mw plant are in practise negligible - as you say, time will tell.
Also the fundamentals in India are that power supply is in acute short supply and so I am confident there will be surplus demand for their output.
I wish you luck also. Simply as an aside I'm also quite big into GBO - similar upside potential but different risk profile as a techy. Might be worth a look. DYOR of course! By gallant02
We seem to think along similar lines about the potential for OPG. I guess the core difference might be that whilst I do agree that OPG is doing extremely well in respect of everything that is under its control and as a result is already a profitable cash-generative business there are still some key performance risks and there are certainly some key risk items not under their control and I seem to be more cautious about these than you.
On the one hand I do think they have clearly evidenced their ability to bring in projects on budget and on-time or ahead of time. However the next two projects are two or three times bigger than what have gone before. Therefore whilst everything thus far looks very good indeed at this stage and I personally feel positive about them there is still bound to be considerable caution surrounding the smooth completion and (perhaps more particularly) the smooth production ramp up of these projects.
Equally as important we have no idea at this stage at what price power will be sold from these new projects. We may assume that Chennai IV will be the same as the other 3 stations but that is not yet certain. And we (or at least I) have no idea at what price the power at Gujurat will be sold. Gujurat output alone should be more than OPG currently produces in total so this is a large scale unkown.
If things go well I absolutely agree that the SP in 2015 will be multiples of the current level as per point 3 in my last post I do feel that 4x is not unreasonable. If Chennai IV & Gujurat are in full production at good pricing and there is more to come through additional project(s) announced over the next year then the SP could be even higher. But there are some pretty big assumptions involved here.
I just feel that I will know a lot more in another 6-12 months than I know now. In the meanwhile I do already hold enough OPG to enjoy any shorter term rerating. If I didnt have such a holding I may well be buying based on the last half years figures and the probable figures for the current half year (i.e. more output but offset in part by greater $:Rupee impact= slightly higher profit for half year?). So, I will probably wait for dividend inflow from some of my other investments and add as we move into 2014.
Excellent write-up JJHB. My only observations are:
1) If year-end profits are to treble, then as I previously mentioned the forward p/e is below 10x so growth hardly priced in
2) Cii was brought on stream ahead of schedule and Gujarat (300mw) is now 3 months ahead of schedule with civ on schedule. I think management have by now proven their ability to deliver and manage these plants so any "delivery risk" should increasingly be taken out of any price calculations (hence my view that the underlying p/e could re-rate any time)
3) At the interim stage profits trebled "despite exceptionally strong currency headwinds during recent months". I therefore feel management work hard to neutralise such risks to the business (eg part of their coal needs are met locally) and as they "trade" their energy output are able to pass on some price rises to customers.
I'm excited about the sp prospects and remain a keen buyer at these prices when funds permit. By gallant02
Re the SP & currency issues here, for what its worth, is my take.
On the currency side the key issue IMO actually boils down to the cost of coal as expressed in Rupees. Income is in Rupees, local expenses are in Rupees, Debt is in Rupees but coal is priced in US$.
We have seen in the last set of figures that the fall in the value of the Rupee has reduced the Gross Profit from over 40% to around 35% - and it is pretty much purely the Rupee that is the cause of this decline. The $ has not been strong over this period (when compared with other major currencies such as £, etc.) and the cost of coal as expressed in $ has not increased. It is simply that the Rupee has fallen against all the major currencies because of the Indian domestic problems. Hopefully that Rupee specific decline has been stopped and there may even be some relative appreciation over time (the $ exchange rate is now below 63 as compared with 67 back in August but this is still a lot worse than the rate of 50-55 seen in the previous 12 months).
Looking at the price of coal all the so-called commodity experts seem to be indicating continuing price weakness and possible declines for the likes of iron, copper, coal etc. etc. etc. because of supply/demand aspects. This should benefit OPG.
However what if the $ appreciates in a significant way on the back of QE tapering? What one tends to see is that the $ and commodity prices move in opposite directions subject always to fundamental supply/demand aspects remaining unchanged. So if the $ drops the commodity price expressed in dollars goes up and if the $ appreciates the commodity price drops.
So theoretically! if the $ appreciates on tapering there will be an offset by means of the $ price of coal falling. The key is obviously what is the net change in the coal price when expressed in Rupees?
If the Rupee strengthens when measured against most currencies it is, IMO, likely that the net coal cost to OPG will not increase much if at all even if the Rupee is somewhat weaker when measured specifically against the $.
Turning to the SP then I do not expect much overall movement over the next 6 months. I hope that I am wrong and that there is some significant move to the upside as progress continues and announcements are made on Chennai IV and Gujurat. As Gallant02 says markets should be forward looking and so again in theory! the SP should move up in quite a big way through, say, the middle part of 2014. However, given the current P/E ratio, there is some degree of future growth factored in. Also, given the scale of the projects, the market may not be willing to add much further value until delivery risks are eliminated (i.e. they are up and running) and the price at which production can be sold is known. So, subject to the Rupee situation, it could be that there is not that much change/growth in the SP over the next 6+ months.
That view could of course prove to be very conservative particularly if there are ongoing positive announcements about project development and contracts for the sale of power to be generated. Given the wording in the last RNS I personally expect an announcement of additional project development which may or may not affect the SP (IMO probably it wouldnt have much impact until the current projects are delivered but should then be a factor behind a continued high P/E rating).
As per my last posting I already hold a fair number of OPG and I will add over the next year (but probably not until the New Year). The major fundamentals for me are as follows. [There are many uncertainties and I will watch both Macro aspects (currency, coal price outlook & Indian energy market) and company specific news very closely and will adapt accordingly]:-
1. OPG has just moved from 2 power stations to 3 and is now producing at approx 2m kwh per annum. Assuming that the new projects will deliver power at the same level of efficiency as the current ones outpu By JJHBev
Present mkt cap is only £225m, so with profits projected to go to £100m within 2 years then the shares could easily treble even on a sub - 10x multiple (they have always traded above that), which I expect within 18 months (because the market tends to look forward).
Their capacity would be around 750MW and they plan to increase to 1,250MW as soon as they get planning. I envisage such a growth story allied to the defensive features associated with utility companies would make this attractive so should result in a p/e nearer 15x - even allowing for currency risk I genuinely can see scope for a 4-fold increase from present levels that remain below their last equity raise in Feb 2011 of 93p ps.
I still consider OPG one of the best kept secrets and amazed PI's haven't latched onto the opportunity on a bigger scale. My opinion only, DYOR of course... By gallant02
This company looks very interesting and it's model and industry is very attractive to me. I'm just not sure to what extent future earnings and growth is priced in and whether investing at the current SP and PE represents good value or a good entry point.
Would be great to hear what others reasonably expect this to be trading at in the next 12m.
The rupee is at historical lows against the $ and growth outlook for next year is strong. The $ has weakened every time they have threatened to ease stimulus measures, so not that clear cut.
What is clear is that OPG's profit is expected to grow to around £100m within 2 years so the rupee rate will not be a massive factor in the scheme of things.... By gallant02
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206% profit increase on 6 month figures.
Chennai III now really contributing and deliver well on time and in
Gujarat brought forward 3 months
IMO, a momentous RNS in the OPG journey. I'm not selling a single share, huge market demand that isn't going away
Excellent rns. All looks well and on schedule . Next year looks transformational for Opg in spite of currency exchange rates. Projects ahead of schedule and within budget. If this does not move the sp then truly do not know what will. Hold on for 100p and above.
Great news today. Paves the way for good, de-risked SP growth as we head into 2014 when we open up our 2 new projects, which will transform our EBITDA. OPG is a professional outfit, who have always delivered so far. New projects fully funded in a market where demand heavily outweighs supply. I'm targeting 120p+ within 12 months based on the extra MW coming on line. OPG is not yet on a lot of radars, but more news flow should change this and bring the sp growth with it. Cheers
The weakness of the Rupee against the dollar and sterling has indeed had quite an effect on OPG as it collects it revenue in Rupees but reports in GBP. That said, we have a lot more Capacity coming on stream next year so whatever happens to the Rupee in the short term, this is a good long term investment in my opinion.
Personally I would not invest in OPG for short term gains, this is surely a long term investment. The big plus point is that OPG is fully funded and all plants under construction are fully funded, so there won't be any dilution by the issung of more shares to fund them. I consider OPG to be a great long term hold.
Ive heard about these through a mate so did a fair bit of research last night. Seems a good prospect to me.
Obviously its quiet effected by the strenght of the Rupee which has taken a bit of a battering recently as markets seem dubious about India's nation bank.
Anyone know anymore about this and is the rupee likely to recover anytime soon? What what I can see, if the rupee falls, so does this.... but assume that if rupee strengthens, then this will too
Good rise since my last post here. Refusing to sell the shares I have until the price reaches 100p. Company seems to be able to talk the talk and walk the walk. Told you Madfish! One of the few that seems to be going well for me.