FOR the second year running, Alinta was one of the most active companies in Western Australia, completing a series of deals that added to the size and diversity of its operations.
FOR the second year running, Alinta was one of the most active companies in Western Australia, completing a series of deals that added to the size and diversity of its operations.
It spent $1.69 billion acquiring Duke Energy’s Australian assets, raised a surprisingly high $155 million selling its stake in Uecomm, and participated in the $1.86 billion acquisition of the Dampier to Bunbury natural gas pipeline.
Also in 2004 the go-ahead was given for the Alinta wind farm and a second cogeneration power station at Alcoa’s Pinjarra alumina refinery.
Alinta ended the year with a profit upgrade, a record share price of about $8.50 and glowing reports from stockbrokers.
But it wasn’t all plain sailing. The company was hammered after announcing the Duke acquisition. Its share price sank to $5.50 and institutional investors rejected an options package for managing director Bob Browning.
Mr Browning believes the Duke acquisition was Alinta’s most significant deal of 2005.
“That was the really big one,” he told WA Business News.
“The Duke deal was important to us because it brought growth assets and a huge amount of diversity.
“We were looking for energy infrastructure assets that had growth potential opposed to just a pure regulated play and Duke fitted squarely in that category.”
In contrast, the Dampier pipeline deal was an extension of its existing strategy, with Alinta taking a partial equity stake and operating the assets.
“What was even more important was that it was the lifeline to our gas retailing here in WA and it underpinned the ability to put in more cogeneration units on the Alcoa sites, so it was particularly important strategically for us to do that one.”
Both deals had their share of difficulty, though in different ways.
“Looking back on it, the one that we copped the most grief for and was emotionally difficult on the outside looking in was Duke,” Mr Browning said.
“The one that was probably the most difficult for us internally was DBNGP because you were dealing with receivers and the banks and regulators and the government and the shippers and the ACCC.”
Alinta’s third major transaction – the sale of its Uecomm stake – was a final tidying up from its ownership restructure in 2003.
General manager business development Chris Indermaur said Alinta was prepared to bide its time on the Uecomm sale.
“It was never going to be a fire sale,” he said.
“We had a pretty good idea of what we thought it was worth and we were prepared to wait for the right opportunity.”
Alinta initially tried to sell the Uecomm stake in February, when it was offered a price of about 28 cents per share.
It finally sold the stake to Optus in May at a price of 32.5 cents per share, so the extra wait was worthwhile.
Azure Capital managing director Mark Barnaba said Alinta’s ability to successfully execute several major transactions had changed the way it was viewed by the market.
“They have transformed from an operating company to a corporate savvy business,” Mr Barnaba told WA Business News.
“They are becoming a young Wesfarmers.”
He said the company was now trading at a higher earnings multiple because the market was confident it could deliver future growth.
That wasn’t the case in April, when the market focused on the short-term negative impact of the Duke acquisition rather than its long-term growth opportunities.
“It was frustrating and disappointing that the market took such a dim view in the early days,” Mr Browning said.
He said the company was always confident it was on the right track.
“I can honestly say that we never had any doubt [the Duke acquisition] was the right thing to do,” Mr Browning said.
He said there was now a better understanding of the opportunities flowing from the Duke deal.
“It set us up very well for the future. We’ve got an array of assets in four different States and Chris [Indermaur] is out looking at all kinds of opportunities on how to further leverage them and continue to grow the company.”
Growth opportunities could include further cogeneration power stations in WA and other States.
Another opportunity is the tender for the Gove pipeline in the Northern Territory, for which Alinta has teamed up with Multiplex and Babcock & Brown.
Mr Browning said Alinta also saw plenty of scope for organic growth, via increased throughput in its pipelines and higher retail sales in WA.
In the longer term he has also flagged investing in infrastructure assets outside the energy sector, in areas such as water and teleco-mmunications.
“There is a lot of stuff happening out there and increasingly it comes to us because we have got a bit of a profile,” Mr Indermaur said.
“We won’t be sitting around idly and consolidating.”
Macquarie Equities believes Alinta will deliver above average growth.
“We see superior growth from the gas transmission, asset management and electricity cogeneration businesses, and this underpins our long-term outperform recommen-dation,” Macquarie concluded in a recent research report.
