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Wednesday 20 August 2014 by Legacy

Envestra Limited research report updated August 2014 - Retail

Executive Summary

Envestra owns gas distribution networks in Victoria, South Australia, Queensland, New South Wales and the Northern Territory. By their nature these networks are monopoly infrastructure assets due to the cost of duplication and limited threat of substitution. As such Envestra’s revenues are largely regulated. Financial performance has improved significantly on the back of upgraded regulatory revenue paths
The vast majority of Envestra’s revenues come from its regulated networks business which includes annual CPI adjustments. This high level of regulated revenue underpins Envestra’s ability to meet its debt obligations. Envestra’s network businesses maintain a low business risk profile due to their essential service nature and diversified geographic footprint
Envestra’s financial profile has improved over the past five years as a result of the paying down of short term maturities on the back of a shareholder backed actions and a focus on internal funding of capex growth
Envestra is the subject of a takeover by the Hong Kong listed conglomerate CKI, which is expected to settle later in the year. As a result, S&P has upgraded the credit rating of Envestra, reflecting their view that CKI will maintain more conservative credit metrics than Envestra as a stand-alone entity
Envestra has no short term refinancing issues and now enjoys one of the longest average debt to maturity in the sector at around 9yrs
As a result of the initiatives above Envestra will fund growth capex via surplus cash flows and equity (as opposed to debt and equity as had previously been the case) which will result in continued improvements in leverage and credit metrics over the medium term
Envestra’s financial risk has improved as a result of initiatives undertaken over recent years and the company has a stable of low risk gas distribution networks across a number of geographic jurisdictions which helps alleviate both regulatory risk and weather risk

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