Last year you attended the AGM and gave us an interesting report. Will you be attending this year? It would be good to gain an impression of the new Chairman, Roger Harper, and the COO, Clive Callister.
That's event 1 (loan renewal) achieved early without undue penalty.
Event 2 (MYG planning application) is progressing and completion of the planning process is now expected by the end of March 2015, This is the earliest we could have expected from the COO's conversation with Suhel3 (a poster on ADVFN) on 29th August which indicated completion between the end of March and the end of June 2015.
However, it looks as though event 3 (sale of Kobylany) will be delayed beyond the end of this year. With the increased Flexible Loan Facility and the extension of the Convertible Loan maturity date to the end of December 2014, an early sale of Kobylany is no longer critical.
The changes to the expected dates for the sale of Kobylany and the completion of the MYG planning process and the increase in the amount of the loans that has been drawn down to £5m will entail changing my estimate of the future net value of REH slightly. I hope to do that over the next day or two.
The resignation of Sir John Baker, the last of the old Directors, was no surprise. He stood down as Chairman at the end of March when Mike Proffitt resigned. Roger Harper has been Chairman for six months and seems to be getting the ducks in a row.
There are three things that should happen over the next three or four months.
1. Renewal of the Utilico Convertible Loan.
You might expect that the loan renewal would happen soon after expiry on 30 September 2013 but past history indicates otherwise. When the loan expired on 31 July 2011, renewal took 8 weeks to agree. When the loan expired again on 31 July 2013, renewal took nearly 5 weeks to agree. My best guess is early November.
2. Submission of the planning application for MYG.
We are now led to believe this will be done by the end of November. Despite the long history of delays, the new COO (Clive Callister) has some experience in these matters and has put his reputation on the line.
3. Sale of Kobylany.
The sale has suffered similar delays but, with the new law on renewable energy finally on the statute book, there is a chance that REH may meet their latest prediction of the end of 2013.
The market has put a value on CWE today but whether that is fair is a matter of opinion. CWE has a long way to go before it reaches profitability and only then can we put a realistic value on it. In the meantime we are juggling with the balance of opportunities and risks. If you want to read some very optimistic views of the future value, I suggest you read the CWE threads on Hot Copper, if you have time to go through hundreds of posts.
To take just one example of the risks, Reunion has suffered considerable delays to deployment of the buoyant actuator because of weather conditions. The foundations were installed last year but EDF are still waiting for an opportunity to complete the work.
The £500k/MW for MYG was mentioned by Mike Proffitt. Britain has a far better wind regime than continental Europe so wind farms earn more money. MYG is in a particularly good area for wind.
Remember REH's abortive venture into German wind farms which consistently failed to meet expectations. From the Chairman's statement in the 2009 Annual Report:
"In Germany, home of our established operational wind assets, the wind speeds have yet
again been substantially below the 20 year index, leaving all windfarms, including ours,
operating below original expectations. We are currently looking at financial options to
improve the return to the Company from these assets."
From Mike Proffitt's statement in the 2010 Annual Report:
"Our German windfarms, which had not performed to our expectations in the light of several years of below average wind speeds, were also sold. Completion of this sale took place in September 2010, realising up to £7.6m in cash after repayment of project debt."
The total installed capacity (not the actual power output) of these wind farms was 40.5MW. So the sale realised £187.7k/MW. Whether this was the actual profit is hard to judge as the project debt may not have included all the costs of purchase and construction. Obviously, this figure should not be confused with the value placed on a fully permitted but unconstructed wind farm such as Kobylany.
In the first line of my previous post, "vaule" should be "value".
To arrive at the possible future value of REH, I have taken the balance sheet in the accounts for 2012 as the starting point.. This gave a Net Asset value of $4,254k. With 69,609,501 shares in issue, this is 6.11p per share.
In the following calculations, I have made a number of assumptions about what will change over the next year or more and will try to explain these wherever I introduce them.
The first assumption is that Kobylany will be sold by the end of January 2014. That is key to paying off the £2.5m Convertible Loan, keeping down interest fees and having cash in hand to pay ongoing administration and development expenses. We have yet to hear what conditions Utilico will impose for extending the Convertible Loan at the end of this month but I have assumed that there will be no material change for a four month extension. Delay beyond that point will certainly result in further reduction of the Net Asset Value.
Kobylany was valued at £4,318k in the balance sheet. I have valued it at £4,440k based on the Bloomberg European average of 172k per MW for fully permitted wind farms before start of construction. I assume the liabilities associated with Kobylany (£495k), as shown in the balance sheet, will come out of the proceeds.
The application for permission to develop the Mynydd Y Gwynt (MYG) wind farm has yet to be submitted (more delays) and a decision to grant or refuse is not expected till mid 2015. Once it has been submitted, "development" costs involved in producing the submission should be minimal but there will be ongoing managment expenses until the assets are sold and the company wound up. I have assumed that MYG development rights will be sold by the end of July 2015. Of course, if planning permission is refused there will be a very large reduction in Net Asset Value.
In the balance sheet, MYG is included in Property, plant and equipment and is valued at £1,086k (see note 13 - Assets under construction). I have assumed that MYG will fetch £500k per MW, yielding £40,500k. Out of the proceeds the original MYG shareholders must be paid £18,225k (£225k per MW). I have assumed that the £500k loan from Howard Evans will be repaid by the MYG shareholders out of this. REH will pay Utilico a Success Fee of £4,500k and a Further Fee of £1,750k because the proceeds of the sale exceed £37,500k.
Carnegie Wave Energy (CWE) is valued at £2,733 in the balance sheet. CWE shares are standing at 5.8c (Australian) at the moment, down from a peak of 7.2c in August but double what they were in June. Prospects look good with the Reunion Project due to be commissioned this year and the Perth Wave Energy Project progressing to schedule and forecast to be commissioned in Q1 2014. These projects are not sufficient to make CWE profitable but CWE has other sites in various stages of planning permission and is well supported by Australian National and State governments. If the Kobylany sale proceeds as hoped, REH should be in no hurry to sell their CWE shares until at least the middle of 2015 by continuing to use the Flexible Loan facility of up to £1.75m. This gives plenty of opportunity for CWE shares to increase in value. With no need of a fire sale, REH should not need to accept a heavy discount to the market price as they did in the last sale. On that basis, I have valued the CWE shares at 10c but there is scope for a better price.
Administration expenses, including development expenditure, amounted to £1,651k in 2011 and £1,409k in 2012. I have assumed that these will drop to £800k in 2013, based on the amount drawn down from the Flexible Loan facility in the first half of 2013, and will drop to £600k per annum thereafter. This amounts to a total of £1,750k in the period from 1 January 2013 to 31 July 2015. I have also allowed for a total of £633k in interest and commitment fees on the Utilico loans over that period.
Over the last month, there has been a debate on ADVFN about how to put a vaule on REH:
I won't summarise the whole debate here but I will explain how delays to selling the Kobylany wind farm have affected the value of REH. I will give an update to my estimate of the Net Asset Value of REH in my next post.
When Utilico provided a £2.5m loan to REH in July 2009, they negotiated the right to convert the loan into shares at 30.25p per share which was typical of the share price at that time. However, since Octobe 2009, the share price has been in decline and the opportunity to convert at a profit has not occurred. This is what I posted on 4th September:
"Why would Utilico pay more than the market price for the shares? I could understand them paying a small premium when shares are tightly held but their shareholders would not be happy if they squandered money. I doubt whether sending "a signal to the market" is in their interest either. If REH succeed in selling Kobylany and MYG by June 2015, Utilico will get their (large) share of the proceeds whatever the market does.
"At the moment, paying 30.25p per share with the likely payout being under 30p looks pretty foolish. The conversion price of 30.25p was set over four years ago. The delays since then to selling Kobylany and submitting a planning application for MYG have cost the REH shareholders dearly.
"Had Kobylany been sold by the end of 2012, there would have been no need for a second loan from Utilico and the first, Convertible Loan would have been paid off. That second loan cost a £50k arrangement fee and around £6,500k in success fees if MYG is sold for £500k per MW. Assuming Kobylaney is sold by the end of January 2014, there could be around £100k of interest and commitment fees to pay on the second loan and another year's interest of £250k to pay on the Convertible Loan. That makes a total of £6.9m in extra costs.
"Had Kobylany been sold by mid 2012, there would have been no need to sell 113,639,808 CWE shares at AU$0.01 per share, netting a mere £746k. Those shares are now worth about £4,574k at AU$0.69 per share and AU$1.7142 per GB£. That is a loss of £3,828k.
"The delays to MYG could result in about two more years of administration fees. In 2011 they cost nearly £1,500k and in 2012 nearly £1,400k. Even if the run rate is cut to a quarter of that, two years would cost an extra £700k.
"So in round numbers, the delays have knocked £11.5m off the value of REH. That is why 30.25p per share is no longer the bargain it was in July 2009."
There was the 5 feb announcement but that said they would de-list in th efirst half of 2013. It hasn't happened so I am wondering. Can't see any other mention of it?
Intention to De-List
The Directors also announce that, in keeping to the previously announced decision to keep the Company's overhead costs to an absolute minimum, it will, with the appropriate advice, seek to de-list the Company from AIM in the first half of 2013. Accordingly, an EGM Notice will be sent out in the near future which will lay out in detail, the rationale for the Directors seeking the approval of shareholders to the proposed de-listing. By LoadsaDosh2
Yesterday's RNS was better than I feared. In February, when Utilico increased the loan facility, they were granted a success fee and an additional fee on the proceeds from MYG which could cost REH about £6.5m. This time, the loan conditions are essentially unchanged so I would classify it as good news.
John By John of Groats
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For excellent debate this last 9mths but essentially see reh value as 30p with 6p being their CWE stake also there are several references to polish asset sale and some stating sale expected by 31-12-13
Share Price Movement
REH notes the recent increase in the price of the Company's shares and the recent increase in the value of Carnegie Wave Energy Limited ("Carnegie"), which is traded on the Australian Stock Exchange (ASX:CWE). REH confirms that it retains 101,330,192 shares in Carnegie, representing approximately 6.8 per cent. of the issued share capital of Carnegie.
The Board confirms that the planning application process for Mynydd Y Gwynt, its Welsh asset, is continuing and that the Company continues to explore its options in relation to its Polish asset, Kobylany.
Best of luck. Not sure whether you intend to trade this along the way, but in any event, I would still recommend throwing Carnegie (ASX:CWE) on your watchlist as well. News there has caused spikes here along the way, which could prove useful to you, unless you're just going to bottom draw them.
I'm seeing this along the same lines as you, and bought in a few months ago when I stumbled across it accidentally, purely on the strength of their interest in Carnegie which provides a good safety net considering we are trading at or just shy of their interest in Carnegie. This share is not really on the radar and very illiquid, but I struggle to see a downside if one is prepared to wait for the value to eventually be realised. The limited downside, and potential for good upside (either from an asset sale or if Carnegie continue their momentum) appears to present a good risk reward ratio, although I confess that there is almost no way of anticipating any time frame for value to be realised here. Based on the maths though, I considered it worth a punt - can"t surpress value forever?! DYOR and GL whichever way you go with this one. If you stumble across anything material, I'm sure the few of us on here would be grateful for your input.
I think the new non exec chairman buying a token £15k worth is a bit out of embarrassment. how would it look if the chairman of your company didn't have a stake in it... I would nt read as much into it as the MMs have this morning..