US Edition International Power
279.4p -1.3
Questor says BUY
This week's numbers from International Power got lost in the market panic – but the figures were good. They were also a little complicated so the market needed some time to digest them.
Following International Power's merger with some assets of French giant GDF Suez, the enlarged group's figures were included for part of the period. The group also started to report in euros for the first time.
The merger was announced last year, but completed on February 3, so the stated numbers do not include a full period for the merged entity. This means that the results were also stated as "pro forma" – adjusted to make both figures a six-month period – so that like can be compared with like in the future.
Also, the company does not state its profits in the usual form of pre-tax profit. Instead, it issued a current operating income (COI) number.
This is because the company owns different-sized stakes in generating capacity across the world and regards this as the best way to indicate their performance. It is essentially a manager of a portfolio of energy investments across the world and, in the turbulent times we have entered, this diversity is the company's real strength.
So, in the six months to June 30, the company's pro forma-adjusted current operating income jumped 9pc to €1.471bn (£1.29bn). Pro forma earnings per share rose 3pc to 13.3 cents.
The interim dividend was 4.40 cents a share, which works out as 3.82p apiece. This is equal to 35pc of last year's total dividend, and it will be paid in sterling on October 27. The shares trade without this payment from September 21.
Analysts cheered the figures – and the fact that the company said it expects to turn in a similar performance in the second half. If it does, this means consensus expectations will be comfortably met.
The new, expanded portfolio of the group's power generation assets gives the company an excellent international footprint in a world that is structurally short of power.
Indeed, the Latin and North America division witnessed earnings growth of more than 30pc on a year-on-year basis. This made up for weakness in Europe – which is expected to continue.
However, the real investment case for the group is its new construction projects – which should add significant new capacity in the future. International Power is developing plants with 7.6 gigawatts of power across the world. It confirmed plans were on track to deliver 2 gigawatts of new capacity by the end of the current year.
At the moment, the company has interests in projects generating about 70 gigawatts of energy a year. Through its power generation activities, the group is also involved in desalination, liquefied natural gas terminals and distribution and open-cast coal mining. A Brazilian hydropower project at Jirau has seen a short delay, but the market had been expecting this as it had been rumoured for some time.
The business made more cost savings than expected as a result of the merger and is now targeting €215m of synergies by 2016 – an increase of €18m.
The shares are trading on a December 2011 earnings multiple of 11.5, falling to 10.1 next year. The yield is 3.5pc, rising to 4pc next year, which is lower than National Grid, for example, but this is because of the company's expected above-industry growth profile.
The shares offer a mix of growth prospects and steady income and they are one to buy in a tumultuous market.