Forum Topics GNX GNX General Discussion
Bear77
Added one year ago

02-June-2023: Hey @Rick - interesting development today with Genex re-issuing their March quarter activities report and App 4C - they said:

Correction to Q3 FY2023 Appendix 4C and Activities Report

After some enquiries received from the ASX, Genex Power Limited (ASX: GNX) (Genex or the Company) hereby provides an amended version of its Q3 FY2023 Appendix 4C and Quarterly Activities Report (quarter ending 31 March 2023), both originally dated 20 April 2023.

The attached updated Q3 FY2023 Appendix 4C contains amendments to sections 6 and 7.6 of such Appendix, while the attached updated Quarterly Activities Report (quarter ending 31 March 2023) contains amendments to its page 6, under the heading “Corporate Update”.

Here's their original report, released in April: GNX-Original-Quarterly-ActivitiesAppendix-4C-Cash-Flow-Report.PDF

And here's the corrected version, released today: GNX-Updated-Quarterly-ActivitiesAppendix-4C-Cash-Flow-Report.PDF

The changes are explained in their cover letter, which I've reproduced above, however the main change that interests me is that they have now listed details of all of their loan facilities and given a weighted average interest rate (in section 7.6 of their 4C), as I've highligted below:

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They closed down half a cent (or -2.95%) at 16.5 cps today, and I'm assuming that the market is concerned about their $175m secured senior debt facility (from Nord/LB, Westpac and DZ Bank) maturing at the end of the 2024 calendar year (around 18 months away). I think it's positive myself. They shouldn't have much trouble rolling that over with either the same banking syndicate or someone else, and the vast bulk of their debt doesn't mature until 2035 or 2036. I imagine that low weighted average interest rate of 2.89% has been brought down to such a low level by that large NAIF loan (Lender: State of Queensland) of $610m which matures in May 2036.

It's interesting that NAIF (the Northern Australia Infrastructure Fund) - see here - is a Commonwealth Government initiative, and yet they list the lender as being the State of Queensland.

Here's the original announcement of that loan: NAIF reaches contractual close on transformational Queensland pumped storage hydro project at Kidston - NAIF : NAIF

As per our earlier discussion, I don't think Genex have much to worry about from rising interest rates. Their debt is locked in at low rates and the majority of it does not mature for another 12 to 13 years from now.

They may be facing higher rates when they need to roll over those two facilities that both mature in December 2024, but those two facilties only represent less than 23% of their total debt, and I believe that energy infrastructure companies like Genex who have long-life, revenue-producing assets will not have too much trouble finding lenders who are prepared to give them relatively low rates - because they will be so low-risk, and the debt will be secured against those long-life, revenue-producing assets. Agreed?

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Rick
Added one year ago

That’s a tough one to work out @Bear77. I think that while Genex’s revenues are covering interest payments on their debt there won’t be an issue. I had a look at analyst’s forecast revenues on Simply Wall Street

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Their revenues at December 2022 were $28 million. Revenues are expected to increase to $61 million by June 2025.

If you work out the interest on the debt assuming they pay 5% on the $190 million that rolls over in December 2024 and 2.89% on the remainder, then the interest bill is likely to be approx $29 million in December 2025 when their revenues should be approx $45 million.

In the long term, I think high inflation could be a tailwind for a business like Genex, and a type of moat. When you think about it, Genex is asset heavy and the value of these assets is going to keep going up with inflation. In future a competitor would need to spend many times more to build the same asset. Yet, they have a long term debt facility at a very low interest rate of 2.89%, well below what inflation is likely to be. So over time the debt will start to look insignificant in comparison to their asset and revenue.

In a similar way to when we baby boomers bought our their first home. Even if we never paid a single cent off the principal, the debt now would be insignificant in comparison to the asset value, less than the cost of a car. Inflation and capital gain has dwindled the debt into insignificance. However, if we were to default on our interest payments along the way, then that would have been a problem.

i don’t know the business like you do Bear, but I hope that helps.

Cheers, Rick

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Rick
Added 2 years ago

Thanks for your valuation straw @Bear77. I agree that Genex should be hitting their straps in 2 to 5 years time. Two analysts covering Genex on Simply Wall Street are forecasting revenue growth of 40% per year and earnings growth of 24% over the next 3 years.

As an investor my biggest concern would be the debt burden. Genex has $536 million in debt ( debt to equity of 230%), $205 million in equity and $65 million in cash.

According to Simply Wall Street data their current EBIT is only 20% higher than their interest payments on the current debt at current interest rates (EBIT is 1.2x interest payments). Debt has been steadily increasing as their projects develop. I don’t know how their loans are structured but it wouldn’t take much more in interest rate hikes before their earnings are all going towards interest payments. I think this is the biggest concern over the next 2 to 3 years. As you pointed out Bear, this is when they should hit their straps and do very well.

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Bear77
Added 2 years ago

I agree with you @Rick that debt levels are the major concern, however that is usually par for the course with infrastructure owners and developers - such as Airports and Toll road operators, however all of their assets will produce income that will more than cover those interest payments and allow for that debt to be paid down and eventually extinguished. The problem with Genex is that they are constructing multiple projects, with the pumped hydro being their largest, and at this point they only have two solar farms producing income for them. I believe they have structured their debt and repayment schedules in a way that allows for their situation. One of their creditors is NAIF - the Northern Australia Infrastructure Fund - see here: https://naif.gov.au/what-we-do/case-studies/genex-power-kidston-stage-2-indicative-term-sheet/

I'm fairly sure that the exact interest rate that NAIF charge is very low, as they are a government initiative to promote infrastructure construction in Northern Australia; the exact interest rate on the NAIF loan has not been publicly revealed, however Morgans have estimated that the interest rate is 2.5% - see here: https://genexpower.com.au/wp-content/uploads/2021/10/aus_gnx_190711_naif_backs_k2_h-1.pdf

Genex are one of those companies that actually provide links to broker reports on their own website. If you go to: https://genexpower.com.au/investors/ and scroll down (you have to scroll down a fair way as there is a lot of content on their investors page), you will eventually reach their "Broker Reports" section, which is ordered under the year of the report, with links to the 2023 reports from Morgans displayed there. You can click on a different year to access reports from that year.

Here are the two Morgans Reports from this year:


Brokers often either have the access to management and/or the resources to answer the questions that we may struggle with, such as how Genex's debt is structured. I believe Morgans were involved in the Genex IPO either as the lead brokers or one of the participating brokers, so it's good to keep that in mind; they would have placed a number of their clients into Genex from the start so they do have a vested interest in Genex and are more likely to be bullish on them than a broker who has no connection to the company.

Further Reading: https://www.marketindex.com.au/news/genex-power-showing-upside-potential-despite-sector-challenges-morgans [10 Jan 2023]

But, to summarise, I am aware that they carry a lot of debt, but I think that is to be expected with a company of this type in the situation (stage of growth) that they are in. I believe a good part of their debt (if not all of it) is locked at fixed rates - certainly the NAIF loan for K2-Hydro would not have a floating rate - and that loan covers a lot of that project, so that is also worth considering I think. I'm not sure that rising rates are going to affect them too much.

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Rick
Added 2 years ago

Thanks @Bear77. Sounds like Genex might be a good pick for the patient investor! :)

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Bear77
Added 2 years ago

That's my assessment @Rick - particularly at sub-15c/share (where they are right now). They are more than 40% below that 25c/share level where the last takeover offer was pitched at and around 35% below the earlier 23c/share offer. And those guys would have done their DD on Genex at the time, particularly prior to raising the offer price from 23 to 25 cents. They did walk away of course, and while a lot of that may have been that Genex just weren't interested in recommending those offers to their shareholders at those prices, the media has also hypothesised that Skip & Co (including Mr and Mrs Farquhar) were perhaps spooked by the tunnelling issues at K2-H and some teething problems at one of the two producing solar farms at that time as well. But that is all conjecture of course.

I would say 25c/share is a reasonable baseline valuation based on where they are now, and that closer to 40c/share looks more reasonable for where they will be in 5 years, assuming they haven't already been acquired by somebody, which they almost certainly will be at some point. There will likely be further CRs along the way, so we have to assume some dilution as well from those, particularly if they are placements with no ordinary retail shareholder participation, but they're still going to be worth a lot more when their various projects are all completed and operational than they are now, and that's where the patience is required I think.

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Bear77
Added 2 years ago

Further Reading On Scott Farquhar: BBC: How a missing letter helped create a tech billionaire [4 March 2019]

And on Kim Jackson (Scott's wife): SMH: How Kim Jackson is carving her own path beyond 'Atlassian co-founder's wife' [1 July 2018]

Excerpt from that second article:

In the six short months since starting investment company Skip Capital, Kim Jackson has quickly become one of the most influential investors in the country.

The trained engineer and former investment banker has made significant investments in seven start-ups with a focus on female-led and founded businesses.

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Kim Jackson has a focus on female-led start-ups at Skip Capital. Photo Credit: WOLTER PEETERS


It's somewhat incongruous then that her own public relations firm plugs Ms Jackson as the "Atlassian co-founder’s wife".

Sitting in the firm's offices, opposite Sydney's Barangaroo, Ms Jackson has a slightly different take on things.

"I run Skip full time and Scott Farquhar, co-founder of Atlassian, is the co-founder of Skip" is how she prefers to put it. "That’s my day job - it's more than a day job. I’m loving it. Scott obviously has a day job. He gets involved where he can."

In the past, Ms Jackson has remained in the background, working on her own career and raising the couple's three children, but launching Skip has meant taking on a more public role.

Choosing her words carefully and flushing as she leans in to answer questions, Ms Jackson is a little uncomfortable being the focus of attention.

But she's relishing her role heading multimillion-dollar fund Skip and is particularly delighted that of the seven start-ups Skip has invested in, four are led by women.

"I wasn't going out looking for female founders," Ms Jackson says. "I was looking for phenomenal entrepreneurs who had really deep experience and were solving a real problem with a global outlook and I just found this really incredible pool of female talent."

Ms Jackson says her "unique history" helped her identify these businesses.

From aluminium smelter to Atlassian

Growing up in the Queensland town of Yeppoon, north of Rockhampton, Ms Jackson graduated dux of her school.

"I went to a co-ed school and I studied maths and science because I loved maths and science and right from the beginning there were always more boys in my class than girls and I felt equal, I hardly even noticed it to be honest," she says.

Ms Jackson studied systems engineering at ANU, a course she says was "90 per cent-plus" male, and was president of the engineering society.

"I did a lot of male-dominated things through that period," Ms Jackson says. "I worked every Christmas holidays at the aluminium smelter near Yeppoon. I was on a scholarship with Comalco Engineering and I worked ... on the floor of the smelter wearing my King Gee pants and top, 1000-volt boots and hard hat and respirator. During that period, I got my crane licence and forklift licence and I was the only girl in my crew. I felt very happy there."


I was always either the only or one of two females in a room. I just really want to change that.

Kim Jackson


After graduating, Ms Jackson moved into investment banking - "again 90 per cent-plus male dominated" - at Salomon Smith Barney, which became Citigroup, and Hastings Fund Management, before moving on to board positions, including at Transgrid and Electronet.

Along the way, Ms Jackson met Mr Farquhar "through mutual friends" and married him.

"That's a long way of saying I was always either the only or one of two females in a room," she says. "I just really want to change that."

Ms Jackson is in a unique position to effect that change with software giant Atlassian, the business Mr Farquhar co-founded with Mike Cannon-Brookes, listed on the Nasdaq Composite Index and Mr Farquhar's wealth estimated at $5.1 billion by the Australian Financial Review Rich List.


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Kim Jackson (left) of Skip Capital with the founders of the female-led start-ups she has invested in: Katherine McConnell, Gemma Lloyd, Megan Elizabeth and Maryam Sadeghi.


Some of that wealth will be invested through Skip, including its four investments in female-led businesses: energy finance start-up Brighte, founded by Katherine McConnell; gender equity recruitment start-up WORK180, founded by Gemma Lloyd and Valeria Ignatieva; skin cancer detection start-up MetaOptima, co-founded by Maryam Sadeghi; and "early stage" craft app Making Things, founded by Megan Elizabeth.

Skip was one of the key investors in Brighte's recent series-B funding round, which raised $18.5 million. For Ms McConnell, having Skip and Ms Jackson on the board has given the energy finance start-up a significant boost.

"Kim was able to understand the complexity of the business," she says.

Ms McConnell says fundraising was tough, particularly the initial seed round where she raised $3.5 million pre-product.

"I was a sole female founder without a tech background setting up a lending business," she says. "It had never been done before. I am a mum with two young kids and I worked part-time at [investment bank] Macquarie. I think people definitely underestimated my ability to execute and that the depth of experience I had could be a competitive threat."

Ms Jackson isn't surprised and cites a Boston Consulting Group survey that found only 2 per cent of venture capital (VC) funding goes to female-led companies.

"It's a real shame that is happening," she says. "It pains me that 90 per cent of VCs are male. I think that needs to change. Female founders are just as good. I think that the investment community and maybe the world is only just starting to work that out."

Ms Jackson won't divulge the amount of money Skip has to invest but says she is looking to make "significant investments" in the tech space.

"The companies we can add most value to are Australian high-tech companies which can benefit from my background in engineering and Scott's background in computer science and our knowledge and networks and connections," she says.

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Husband and wife Scott Farquhar and Kim Jackson.


Ms Jackson says so far, working with her husband is going well.

"It's not like we are working together day to day," she says. "He gets involved in mentoring and he gets involved in particular sectors that are of interest to him.

"We will choose different companies for each of us to lead the investment. We are a really great team and we have separated the roles extremely well."


--- end of excerpt ---

Source: https://www.smh.com.au/business/small-business/how-kim-jackson-is-carving-her-own-path-beyond-atlassian-co-founder-s-wife-20180628-p4zoeg.html


Also: AFR: Chanticleer: Why Atlassian’s Farquhar wants to take Genex private [25 July 2022]

Excerpt:

First, Mike and Annie Cannon-Brookes’ investment vehicle, Grok Ventures, tried to take giant AGL Energy private.

Now, the other billionaire couple behind software company Atlassian, Scott Farquhar and wife Kim Jackson, have launched their own raid on an ASX energy company, launching a bid for renewable infrastructure group Genex Power.

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Skip Capital’s Scott Farquhar and Kim Jackson are another example of how an influential group of billionaire families are pioneering a new style of activist investing. [David Rowe]


Sure, the scale is just a little different; Grok’s bid (in partnership with Canadian giant Brookfield) was worth $8 billion, while Jackson and Farquhar’s bid (which involves their Skip Capital vehicle teaming up with a US-based private equity firm called Stonepeak) is worth a touch over $500 million ($318 million equity plus debt).

But the basic idea is the same. Just like the Cannon-Brookes, Jackson and Farquhar are prepared to put big licks of capital to work to accelerate the energy transition. And just like Grok originally argued with AGL, Skip believes Genex will be better placed to navigate that transition as a private company backed by long-term, patient capital.

Genex, which listed in mid-2015, is a fascinating little company that operates the Kidston Clean Energy Hub. It has operated a 50 megawatt solar project since 2017 and is developing a 250MW pumped hydro storage project, which is to be located in a former gold mine. It owns a second solar project in NSW, and a battery project in central Queensland that is due to commence operation in the middle of next calendar year.

But as with many listed renewable infrastructure firms, life as a listed company has been challenging for Genex. The constant need for capital to develop its ambitious projects – it has raised almost $190 million through four separate capital raisings in the past three years – has weighed on its share price. The stock has traded in a range broadly around its 20¢ issue price for much of its listed life, and between 10¢ and 24¢ over the last 12 months.

Jackson, who spent 13 years as an investment director at infrastructure specialist Hastings Funds Management before founding Skip in 2017, has been a key supporter of Genex. Skip holds a 10 per cent stake in Genex alongside its portfolio of mostly private renewable investments that encompasses 100MW of renewables assets and more than 4300km of transmission and distribution assets.

Think bigger

But now Jackson, who worked on a range of big-ticket infrastructure bids at Hastings, including the acquisition of Transgrid and the Sydney Desalination Plant, believes it is time for Genex to think bigger. The Skip camp believes Genex can potentially double its renewable energy capacity with the support of private capital that will free it from the need to regularly tap shareholders for dilutive capital raisings.

Stonepeak, which is run by former Macquarie banker Michael Dorrell and has another “Millionaire’s Factory” alumni Darren Keogh leading its Australian business, is teaming up with Skip in what is the US group’s first Australian play.

Late last week, Skip and Stonepeak bought stakes held by First Sentier Investors and Paradice Investment Management, giving their consortium a 19.99 per cent stake in Genex. On Friday night, Skip and Stonepeak lobbed their bid to Genex’s board, priced at 23¢ a share – a whopping 70 per cent premium to Genex’s last close, and a 95 per cent premium to its volume weighted average price over the previous month.

Although the consortium arrangement between Skip and Stonepeak meant the bid became public sooner than any of the parties would have liked, the Skip camp emphasises this is as friendly a bid as it can be.

Still, the 19.99 per cent stake amassed by the consortium – which is being advised by Jarden and RBC – should show the consortium means business, and provide a deterrent for other potential bidders who may approach Genex and its banker, Goldman Sachs.

The Genex board is still considering its position, and there’s a way to go before any deal is reached. Nevertheless, this transaction is unlikely to attract anything akin to the column inches the Cannon-Brookes’ tilt at AGL received.

But it is another example of how an influential group of billionaire families – the Cannon-Brookes, Farquhar and Jackson, and Andrew Forrest and his wife Nicola Forrest – are pioneering a new style of activist investing.

These billionaire families are targeting ASX-listed companies where the entrepreneurs believe the fortunes they have built through public markets can offer the sort of private, patient capital these firms need to juice their profits and their sustainability goals.


--- end of excerpt ---

Source: https://www.afr.com/chanticleer/why-atlassian-s-farquhar-wants-to-take-genex-private-20220725-p5b4aa


Further, Further Reading:

b564bb3bc877016c19f8e5fe6d13f50e9e05d0.png AFR: Three megatrends collide in Cannon-Brookes, Brookfield’s AGL bid


9122ea46f43df472cdb9bfb52b505c81838bad.png AFR: Skip Capital teams up with private equity for Genex Power play


5751feb034c32cb9c3ecb5854678fd259ebe44.png SMH: Gender equity start-up backed by Atlassian co-founder goes global


516369a69862b814525c42255997d8dcfbdfa6.png


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Bear77
Added 2 years ago

Sometimes when you go down a rabbit hole, it leads somewhere you could never have predicted... Remember this track? Anybody?

a3174a71632ef433efcb2971a7df72bb7434d7.pngOutkast - Ms. Jackson (Official HD Video)

[nothing to do with Ms Kim Jackson, or investing]

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