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Friday 15 November 2013 by FIIG Research Legacy

Envestra Limited research report updated 2013

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
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
Financial performance has improved significantly on the back of upgraded regulatory revenue paths – the full effects of which will contribute to further impairment in the coming year
Envestra has no short term refinancing issues with Envestra now enjoying one of the longest average term to maturities in the sector at ~11yrs.
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.
As a result of its geographic diversity, Envestra has lower regulatory risk in any one year and also mitigates some volume risk as a result of mild weather conditions in any one jurisdiction. Recent regulatory decisions have also removed this risk over the short to medium term
Envestra’s financial risk has improved considerably 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. The company’s bonds are currently offering strong returns for a conservative infrastructure asset

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