Post on 22-Dec-2015
transcript
Weather Normalized
Sales
Indicators for each Segment
Monte Carlo Simulation
Growth rate of MWH Sales
Revenues based on MWH sales and rate case projections
Projected Financial Reports
Used P/E valuation
Developed a PEER group of competitors of
GXP
Intrinsic Value
Valuation Steps
Current Price: $19.93Price Target: $20.15Upside: 1.10%Recommendation: Hold
Comprehensive Energy Plan
Upcoming rate cases
Capital Expenditures remain steady
Financial Valuation
Market Profile
52 Week Price Range $16.63-20.14
Average Daily Volume (3m)
960,316
Beta (Est.) 0.78
Dividend Yield (Est.) 4.13%
Shares Outstanding 135.65 M
Market Capitalization $2.7 B
Institutional Holdings 65.50%
Insider Holdings 0.26%
Book Value per Share $21.55
Debt to Total Capital 43.1%
Return on Equity 7.9%
Recommendation: Hold Shares of GXP
Source: Company Reports and Key Capital Estimates
Comprehensive Energy Plan at a glance
• 100 MW plant in Spearville, KSWind
• Selective Catalytic Reduction (SCR) unit at Lacynge I
Lacynge Environmental
• Air Quality Control System at Iatan IIatan I
Environmental
• Construction of Iatan II-Super Critical Coal Plant Iatan II
Iatan2
Increase in Wholesale Revenue
Decrease in Purchasing
Electrical Power
Reliable Electricity
Generation
Lower Cost from Coal
Generation
Increase In Asset Base
Successful Completion of Comprehensive Plan
Major driver for rate increase
Rate Jurisdiction
Rate Increase
Rate Increase Percentage
Rate Base Effective Rate
GMO (MPS) $75.8 M 14.4% $1,469 M 6/4/2011
GMO (L&P) $22.1 M 13.9% $422 M 6/4/2011
KCP&L(MO) $92.1 M 13.8% $2,123 M 5/4/2011
•In the recent rate case outcome for KCP&L (KS), the company was granted 4.6% rate increase compared to a request of 11.5%.
•In November 2010, MPSC staff filed recommendation suggesting return on equity in the range of 8.5% -9%. This is well below the requested ROE of 11%.
Uncertain outcomes for upcoming rate cases
Source: Company Reports
Capital investments are expected to remain steady
• Best Available Retrofit Technology (BART) will cost between $800-900 million. • Transmission investments include a proposed 170-mile 345-kV line costing approximately $380 million.
•Possible involvement in building of an additional Nuclear Plant in Callaway estimated total cost as of 2008 for all the partners is estimated at $6 Billion.
2010 2011 2012 2013 2014
Total Projected Capital Expenditures $652 M $679 M $672 M $668 M $673 M
Source: Company Reports and Key Capital Estimates
Source: Company Reports and Key Capital Estimates
Financial Valuation of Great Plains Energy
Key Assumptions of our Model
The Powder River Basin prices for coal have remained stable
Source: EIA
Source: Company Reports and Key Capital Estimates
Years FCF/S CFO/S
2009 ($4.44) $2.58
2010E ($0.47) $5.18
2011E ($1.06) $4.79
2012E ($3.77) $1.74
2013E ($1.36) $3.85
2014E ($1.31) $3.93
Projected FCF/S and CFO/S
Source: Company Reports and Key Capital Estimates
Cash flow and Income Statement Data for GXP
Industry vs. GXP
Source: Yahoo
PEER Group vs. GXP
Ameren Westar Energy
Great Plains Energy
Empire District Electric Company
Market value $6B $2B $2B 904MPrice Information $28.89 $26.27 19.72 $21.8
EPS $.71 $1.86 $1.69 $1.15P/E Ratio 40.69 14.42 11.67 18.96
Dividend Yield 5.35 4.72 4.21 5.9
Analyst Forecasts
Forecasted Earning Growth
-2.01% 43.92% 36.92% 6.14%
Growth rate Relative to industry
-7.87% 38.06% 31.05% .28%
Source: NASDAQ
•Forward P/E Valuation and PEER Group show small discount relative to GXP current share price
Source: Company’s Reports and Key Capital Estimates
Valuation based on P/E multiple
Investment Risks Great Plains
• Natural Disasters • System Failures • Inability to cover costs
Operational
• Unfavorable weather• Power Outages• Property Damage
Variation in Weather
• $484 M in notes are maturing in 2011• Mandatory convertible notes of $287.5 M
to common stock are maturing 2012• Pension Fund Obligations-Underfunded
Financial Risk
• KCC and MSPC lag increases in fuel costs• EPA could deny retrofit permits• FERC could deny short term debt
authorization
Regulatory
Recommendation: HoldCurrent Price: $19.93Price Target: $20.15Upside: 1.10%
Successful completion of Iatan
II.
Uncertainty of upcoming rate cases
in MO.
High projected capital expenditures in
environmental retrofits.
Financial Valuation cautions investors
to Hold
Current Price: $19.93Price Target: $20.15
Recommendation: Hold
Upside of 1.10% is not enough to compensate investors based on our forward P/E valuation.
Comprehensive Energy Plan
Upcoming rate cases
Capital Expenditures remain steady
Financial Valuation
Company Information
Industry Information
Financial information
Company Information
• Incorporated in 2001• The holding company of
KCP&L and GMO.• Operates under the brand
name KCP&L.• Primary source of business
comes from Electric Utility. • Acquired Aquila in July of
2008. • Serves over 820,000
customers in Missouri and Kansas
Source: Company Reports and Key Capital Estimates
Sale of Strategic Energy and Acquisition of Aquila Points
• Great Plains netted $102.6 M from the sale of Strategic Energy in 4/3/2008. This resulted in a loss of earnings of 0.26 cents a share.
• Acquisition of Aquila was completed in 7/15/2008. During the transaction Aquila shareholders were compensated with 1.80 in cash and .0856 shares of Great Plains. This resulted in earnings per share dilution of 0.28 cents a share for 2008 due to the issuance of 32.7 Million shares of GXP. Resulting in a total cost of 1.7 Billion.
• Great Plains Energy expects the transaction to deliver financial and operational benefits
In several areas. Total pre-tax synergies are estimated to reach about $500 million over
a five-year period, with costs to achieve, including transaction costs, of approximately
$185 million.• Operational synergies over the same five-year period are expected to total about $310
million. These synergies are expected to result from:
· Improved operational and scale efficiencies enabled by adjacent service areas;
· Reduction in overlapping positions and overhead expenses;
· Capturing the benefits of more efficient procurement;
· Integrating and enhancing information technology; and
· Investments in infrastructure and energy efficiency.
Service Territory and Capacity
Primary Fuel Estimated 2010 MW Capacity
Base load Nuclear 545
Coal 3168
Peak Load Natural Gas and oil 2296
Wind 15
Total 6024
• Does not include recently completed Iatan II
• Highly Regulated Electric Utility Public Service Commission of the
state of Missouri Kansas Corporation Commissions Southwest Power Pool Federal Energy Regulatory
Commission Nuclear Regulatory Commission Northern American Electric
Reliability Commission Environmental Protection Agency
FERC FERC
NRC NRC
MPSC MPSC KCC KCC
SPP SPP
GXP GXP
NERC
NERC
EPA EPA
GXP as an Electric Utility
No. 1 in the industry GXP Rank in the world
Size Tokyo Electric Power Company 63
Value Orient Green Power Company Limited 45
Stability Bf Utilities Ltd 31
Price Performance Indian Energy Ltd 60
Sales Tata Power Co. Ltd 47
Profit Margins Renewable Energy Holding PLC 43
Growth History Reliance Power Ltd 61
Trading Liquidity Ksk Energy Ventures Ltd 82
Cash Flow Tokyo Electric Power Company 58
Dividend Payouts Energy Texas inc 31
Source: Reuters
Key Executives
Michael Chesser Chairman and Chief Executive Officer
William Downey President and Chief Operating Officer
Jim Shay Senior Vice President, Financial and Strategic Planning and Chief Financial Officer
Terry Bassham Executive Vice President, Utility Operations, KCP&L
Barbara B. Curry Senior Vice President – Human Resources and Corporate Secretary- GXP and KCP&L
Michael L. Deggendorf Senior Vice President-Delivery-KCP&L
Scott H. Heidtbrink Senior Vice President-Supply-KCP&L
John R. Marshall Executive Vice president-Utility Operations-KCP&L
William R. Riggins General Counsel and Chief Legal officer
Lori A. Wright Vice President and Controller
2009 Revenue Breakdown
37%
26%
9%
27%
0%
GXP Sales by Jurisdiction
GXP
GMO
KCP&L
Source: Company Reports
38%
31%
11%
20%
0%
39%
42%
16%
3% 0%
GMO; 35%
KCP&L(KS); 28%
KCP&L(MO); 37%
Major News in 2010•On May 2010,Great Plains Energy and KCP&L announced the promotion of Terry Bassham to executive vice president of Utility while James Shay has been appointed senior vice president of Finance and Strategic Planning and chief financial officer of Great Plains Energy and KCP&L.•In August, KCP&L Announced that Iatan II Has Completed In-Service Testing. The plant met in-service criteria subject to confirmation by regulatory authorities.•In November, Great Plains Energy and KCP&L announced the promotion of Heather Humphrey to General Counsel and Vice President - Human Resources, and Ellen Fairchild to Vice President - Corporate Secretary and Chief Compliance Officer.• In November 20, The Kansas Corporation Commission (KCC) released its order regarding KCP&L’s Kansas rate increase request. The order calls for a $21.8 million, or 4.5% increase in revenue. KCP&L originally requested a $55.2 million, or 11.5% increase in revenue.
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Great Plains Energy Inc. (GXP-USA) [Delayed]
19.93 0.14 0.71% 03:01:33 PM 2010/02/05 - 2011/02/08
50 Day M oving Average 200 Day Moving Averag e
0
2,000,000
4,000,000
6,000,000Volume
YTD Stock Price Chart
Source: Factset
Strength at Core
Source: Company Reports
GXP Stock Holding SummaryInstitutional
Total No. of share holders 243
% of Shares Outstanding 69.19%
Total Shares Held 93,854,018
Total value of Share Holdings
$1,850,801,235
Net Activity 1,653,254
Total 5 Holders Shares Held
Bank of New York Mellon Corp.
8,541,672
Vanguard group Inc 6,125,166
Hotchkis and Wiley Capital Management LLC
5,651,085
Putnam Investment Management LLC
5,078,871
Gamco Investors Inc 4,169,777
Insider TradesLast 3 Mo. Last 12 Mo.
No. of Insider Trades 10 41No. of Buys 0 16No. of Sells 10 25Net Activity -39,895 19,840
Source: NASDAQ
Institutional Ownership: GXP vs. Competitors
Source: Nasdaq
Companies No. of Investors
% of Share outstanding
Westar Energy 254 70.33
Great Plains Energy 243 69.19
Ameren Corporation 381 57.93
Empire District Electric Company
121 36.87
SWOT Analysis
Strength• Synergistic Effect From Aquila•Steady Revenue Stream•Completion of Iatan 2•Solid Transmission Network•Wide Customer Base•No retail Choice in Service Territory
Weakness•High Reliance on Coal• Rate Increase must go through Regulators•High Level of debt•Underfunded Pension fund
Opportunity•Improvements in efficiency of existing plants•Smart Grid program•Increase in demand
Threats• Federal Environmental Regulations•Abnormal Weather Conditions•Deterioration of Credit Markets•Market downturn
Industry Information
Rebased Electricity Demand in Residential Segment
Rebased Electricity Demand in Commercial Segment
Rebased Electricity Demand in Industrial Segment
Population (Missouri and Kansas)
19911992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
2009 -
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
Years
Pop
ulation
Source: Census.gov
GDP of Kansas and Missouri
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
50
100
150
200
250
300
350
400
GDP
GD
P in M
illions
Source: Bureau Economic Analysis
Business Process and Cost Sharing
Source: EIA
Source: EIA
Source: EIA
Demand for Growth for Electricity is Expected to Decline
Source: EIA
Expected Fuel Mix to generate electricity in the long run
Source: EIA
Natural Gas Prices are expected to stay low due to oversupply
U.S. shale gas production increased 14-fold over the last decade; reserves tripled over the last few years
U.S. Annual shale gas production (trillion cubic feet per year)
Source: EIA
Natural Gas Futures are indicating stability in prices
Factors that can change the fuel mix for electricity generation
•Clean Air Transportation Rule•Ash Disposal Requirements•Requirements for cooling water systems•Variation in input costs in different resources•Possible Regulations on Carbon Emissions
Financial Section
GXP as an Electric Utility Company
GXP Industry Sector S&P 500
P/E ratio 11.74x 6.36 7.76 18.46
P/E High Last 5 years 20.94 80.46 70.98 84.86
P/E low last 5 years 12.85 16.16 15.46 12.38
Beta .76 .43 .45 1.33
Price to Sales 1.18 1.84 1.84 2.27
Price to Book .92 .52 .56 2.84
Price to CF 4.76 4.49 5.49 8.13
Dividend Yield 4.21 2.18 2.19 1.53
EPS -5 Yr Growth Rate (13.67)% 5.86 5.99 4.88
Capital Spending- % Yr Growth rate
34.58% 22.37 24.86 11.74x
LT debt to Equity ratio 105.02 72.82 68.96 107.37
Net Income/Employee
72,656 1,244,242 1,083,595 40,019
Source: Reuters
Source: Company Reports and Key Capital Estimates
Income Statement
Source: Company Reports and Key Capital Estimates
Balance Sheet
Source: Company Reports and Key Capital Estimates
Statement of Cash Flows
Source: Company Reports and Key Capital Estimates
Common Size Balance Sheet
Source: Company Reports and Key Capital Estimates
Key Financial Ratios
Pension Fund and Health Care
Year Under Funded Expenses
2002 -164.5 10.8
2003 -204.3 28.4
2004 -179.6 34.5
2005 -183.2 28.2
2006 -182.4 29.6
2007 -172.5 59.1
2008 -450.3 63.8
2009 -445.0 74.9
• GXP Pension Fund and health care is highly underfunded and with 22% of employees eligible to retire by 2013 with full pension benefits and might increase the cap and the cost as well
Source: Company Reports
Maturities of Long Term Debt
Issue Amount Out Rating
Date (US$ mm) Coupon Maturity Moody/S&P31-Oct-01 200 7.75% 15-Jun-11 Baa3 / BBB
24-Jul-86 23 6.63% 01-Jul-11 WR / --
20-Nov-01 150 6.50% 15-Nov-11 Baa2 / BBB
18-May-09 288 12.00% 15-Jun-12 -- / --
28-Jun-03 500 11.88% 01-Jul-12 Baa3 / BBB
13-Aug-10 250 2.75% 15-Aug-13 Baa3 / BBB-
04-Jun-07 250 5.85% 15-Jun-17 Baa2 / BBB
25-Sep-07 100 6.88% 15-Sep-17 Baa3 / BBB-
11-Mar-08 350 6.38% 01-Mar-18 Baa2 / BBB
24-Mar-09 400 7.15% 01-Apr-19 A3 / BBB+
27-Mar-99 81 8.27% 15-Nov-21 Baa3 / BBB
28-Feb-02 288 7.88% 01-Mar-32 -- / --
23-May-06 250 6.05% 15-Nov-35 Baa2 / BBB
17-Apr-56 12 4.35% -- Ba2 / BB+
Source: Company Reports and Factset
Beta and WACC Calculation
Source: Company Reports and Factset
Key Items FiguresWACC: 6.79%
Cost of Debt rD: 5.21%
Corporate Tax Rate TC: 27.16%
Cost of Equity rE: 9.14%
Risk Free rate 3.65%
Market Rate of Return 10.69%
Beta 0.78
Total Debt D: $ 3,652,000,000
Total Equity E: $ 2,670,000,000
Total Firm Value: $ 6,322,000,000