GREEN COMPANIES STUCK IN THE RED
16 September 2008
Matthew Warren
INVESTORS HAVE BEEN UNMOVED BY THE RUDD GOVERNMENT'S TOUGH TALK ON EMISSIONS TRADING.
Most smaller clean-energy companies performed worse than the All Ordinaries in this year's bear market.
The emerging clean-energy-technology companies have been among the hardest hit as cash-strapped investors have offloaded these small-cap speculative stocks, many of which are still years from generating income.
The Australian Clean Tech index covering more than 70 environmentally focused companies has been officially tracking with the market, but has been carried by the stellar performance of scrap metal recycler Sims Group.
With a market capitalisation of more than $5 billion, the Sydney-based global recycler is easily the biggest stock in the index, accounting for a third of its total value. Two weeks ago, Sims announced an 81 per cent increase in full-year earnings to $433 million, off the back of strong metals prices.
Its share price has defied the bear market, posting a 32 per cent increase this calendar year while the All Ordinaries has fallen 19 per cent over the same period.
But beneath this, performances fall away sharply, with the price of some stocks falling by up to 60 per cent since January.
The sub-indices of the clean-tech index -- solar, wind and geothermal -- report a sharp return to earth after a strong 2007 financial year, peaking around the time of the Bali climate change negotiations in December.
Leading geothermal energy company Geodynamics has fallen 37 per cent in value this year even though it has the backing of a $150 million joint venture with Origin Energy and another $37 million investment from Indian energy company Tata Power announced last week.
The company is the first to drill the 4km holes needed to tap heat energy from massive reserves deep beneath the earth in the Cooper Basin, and is working through technical hiccups to proving the technique of circulating steam to generate power.
But the venture has been expensive, with each well costing between $10 million and $15 million, and income from selling electricity from its pilot 40 megawatt power station not flowing until 2010. Geodynamics managing director Gerry Grove-White said some of the company's biggest investors had been forced to sell down their holdings to meet margin calls. "Some of the speculative stocks are the first to go," he said.
"That's been the case for two or three of our biggest shareholders, but more importantly it means there is no price support."
Energy Developments has been in the carbon abatement business for 20 years, generating electricity from methane harvested from mines and landfills as well as operating liquefied natural gas and compressed natural gas projects in 78 sites around the globe.
Landfill gas and coal-mine methane capture and combustion are relatively low-cost abatement technologies, cheaper than most wind turbines, but not permanent and with some emissions footprint. The risk and hence share price pain (down 24 per cent this year) has been minimised because of mature technologies and established income.
Chief executive Greg Pritchard said the company faced uncertainty in the transition from the current NSW greenhouse gas abatement scheme to full-blown national emission trading by 2010.
Its methane gas projects currently generate GGAS credits, but will not receive the same treatment in the proposed national scheme, instead incurring liability for emissions from the combustion process. "We are confident the federal and state governments will transition existing projects," he said. "Not to do so would send a very bad investment signal to companies like ourselves that have invested hundreds of millions of dollars in this type of technology."
Investment manager at clean-tech venture capital firm CVC Sustainable Investments, Sean Wiles, said many of the companies were encouraged by the strong market since 2003 to raise funds through listing, rather than pursuing the backing of venture capital investors.
"When times were good, companies would go to the market and they would be oversubscribed, there were a lot of brokers interested that were able to help sell the story and it was quicker and was seen to be successful," he said. "Times have changed.
"The investment base has developed to such a stage now that there are opportunities to invest in companies further along the track."
CVC is now holding cash reserves from a range of investors both looking to "do the right thing" but increasingly focused on the emerging value in the sector and the limited number of investment vehicles in the Australian clean-tech space.
"So we can afford to look more closely at the range of deals on offer in this space without ferocious competition from other funds," he said. "Other businesses like Babcock & Brown relied on a leveraged model, so were not getting forced into a bidding war for companies so we are able to spend more time in due diligence."
While not ruling out investing in listed clean-tech companies, CVC prefers the value and control of taking sizeable positions in developing companies.
"We say to our investors that you have to have a five to seven-year horizon for your investment. It may be less liquid than other investment products out there," Wiles said.
"There will be a time when the multipliers start kicking in and there will be real value from those businesses is realised."
Babcock & Brown Wind is the largest owner and operator of wind farms in Australia, with more than 1000MW of new projects on its books waiting for the implementation of the Government's upgraded renewable energy target.
"We do have a very stable business," chief executive Miles George said. "The current share price the market is valuing our wind energy assets at is around half what we have just recently achieved for the sale of the same assets in Spain."
Copyright 2008 News Ltd.
The Australian
Go to top
Print Page
Smaller
