Alinta sets itself for new mantle

WHEN the share price of a stock has already risen 67 per cent over 12 months it is a brave investor who imagines that there is much more fuel in the tank.

Normally, that is a perfectly understandable assessment. However, in the case of Alinta the situation is far from normal, not because of anything the company has done, more because of what’s happening at the opposition.

Odd as it may seem to a casual observer of the WA energy game the opposition in this case is the business which was once Alinta’s "other half" when it was government owned, Western Power.

Over the past few months, Western Power has lurched from crisis to crisis with the people in charge appearing to forget their most basic job – the provision of electricity to thousands of customers across the south-west.

Well, what Western Power looks less-and-less capable of doing as it blunders along like a parody of an old-fashioned, inefficient, government department (oh, sorry, that’s what it really is) then nimble new players in the electricity business will do instead – and in about 18-months Alinta flicks the switch at the first of its own electricity-generating turbines.

Alinta’s shift from stodgy, gas-distributing, government agency, to aggressive energy provider in virtually any form the customer wants (in WA and in other States) appears to have been over-looked in the painful meltdown of Western Power, a government business which may (or may not) be split into different operations, may (or may not) be privatised, may (or may not) apologise for mistakes, and may (or may not) remember that it is the customer who always comes first.

 What’s that you say, sorry again, Western Power never knew that customers came first, so how could they forget what they never knew.

Good point.

Whatever the shortcoming in the three-ring circus called Western Power, canny investors will be seeing more than political shenanigans and rotting infrastructure.

They will smell an opportunity because what the government cannot provide, the private sector will, and the business perfectly positioned to fill the gap being created by the Western Power farce is Alinta.

Down at Alcoa’s Pinjarra alumina refinery, Alinta is building a 140 megawatt, co-generation power station that will supply steam to Alcoa and sell electricity into the south-west grid.

The diversification into electricity production is why Alinta dropped gas from its name last year (but not, curiously, from its web address). Irrelevancies aside, the real message is that the Pinjarra unit will be extremely cost-efficient – and it will not be an orphan.

Alinta has plans for nine more just like it, eventually lifting its WA electricity capacity to 1,400MW and if that doesn’t impress you picture it as being the size of about one-third the current south-west electricity grid.

The financial numbers on Alinta’s electricity business do not yet appear to have been crunched by any outside analysts. Goldman Sachs JBWere made barely a mention of it in a report on Alinta produced late last year.

However, what the broker did do was produce a valuation on Alinta of $7.30 a share.

It is this figure that fascinates Briefcase because the stock was trading around $6.30 at the time, and is now selling at $6.72.

That is still 58 cents short of the Goldman Sachs valuation, or with at least another 8 per cent in the tank.

Briefcase never gives investment recommendations, and Alinta has run a long way, so even if you’re not a buyer you can at least see why the stock has risen 67 per cent since last January.

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WHO, Briefcase asks with all due humility, is the $30 million man at Sons of Gwalia?

Is it outgoing chairman and chief executive, Peter Lalor, incoming chief executive, John Leevers, chairman-elect from next April, Neil Hamilton – or Briefcase itself.

Before anyone at the gold and tantalum miner claims the title take care. $30 million is roughly the value by which SOG has risen since Peter Lalor announced his retirement – leaving outside observers to wonder whether it is Peter going, or John (and Neil) coming which has caused the rise.

The numbers look like this. Just before Peter made his well-flagged departure announcement on January 19, SOG was trading around $3.75.

At the close of business last Friday, the stock was at $3.93.

The rise, when applied to the issued capital of 188.18 million shares lifts the value of SOG from $705.7 million to $739.5 million.

Briefcase, to help avoid any embarrassment at SOG, is prepared to act as a volunteer for the title of $30 million man by pointing out that SOG was only trading at $3.77 as WA Business News went to press last week with an article on SOG and the world tantalum market, so perhaps the $30 million belongs here – now where would someone hide $30 million in a newsroom?

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THOUGHT for the week: "Be wiser than other people if you can, but do not tell them so". Lord Chesterfield, 1774.


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