ENV - Envestra Limited

[System]

Envestra Limited (ENV) is the largest distributor of natural gas in Australia, with networks in South Australia, Victoria, Queensland, NSW, and the Northern Territory. ENV listed in August 1997 as a spinoff of Origin Energy's (ORG) SA, QLD and NT gas distribution networks. Envestra securities are stapled securities, comprising a share and a loan note. Revenues are derived from haulage and services through its networks.

http://www.envestra.com.au

 

[Muschu]

I noticed ENV had a bit of a write-up in the current Smart Investor as a high dividend stock.
Hadn't heard of it previously.
Rick
- Not a holder

 

[So_Cynical]

Was cheap awhile ago at 48/49 cents, ive been watching for a while...they have alot of debt and a while ago there credit rating was upgraded and that seemed to help there SP, great dividend return for a stable, safe-ish infrastructure stock.

 

[ParleVouFrancois]

I would be somewhat hesitant to invest in Envestra based on dividends, if you look at the longer term share price, sure you get dividends, but the share price depreciation historically has outweighed them.

If you bought into the float and reinvested dividends, you'd still be behind you sitting in term deposits. Also the business itself is highly regulated and vulnerable to long term periods of increased interest rates. The highly regulated by the government gas pipelines allow the operators to make a certain % each year on their invested capital in the pipeline. Naturally the operators charge as much as they can legally. Usually this isn't a very profitable business, but you can "soup" up the returns by funding it with debt, provided the debt has a lower % charge than the % allowed to be made by the operator (usually the case).

Pipeline companies are typically (some exceptions exist) very similar in structure to property companies, both use large amounts of debt to turn what is generally a safe and solid investment yielding at best a medium amount of cashflow, into a higher yielding but more susceptible to sudden interest rate rises asset. Obviously the company can offset the risk of rising interest rates with hedging, but this in itself adds another layer of risk, the investor is relying on managements competence to hedge correctly, otherwise they will be on the receiving end of the perfect storm of rising interest costs, bad hedges, and loans falling due. Any of the previously mentioned can cause the pipeline company to have to cut dividends (the reason you invested in them in the first place), to help pay off the debt, which was supposed to be increasing the dividends.

Anyway this is just a smallish rant about how pipeline companies operate for people wishing to invest in ENV. By not being bullish on ENV, by default I'm bearish on it, much better value found elsewhere in the market.

Disclosure: I bought ENV pre-GFC got a few dividends and sold out for a capital gain profit, nothing but good memories from my investment in ENV, but now I'm much older and wiser I realize how lucky I was and how risky ENV is.

 

[Muschu]

The comments above are very much appreciated. Many thanks. ENV was mentioned alongside what I gather is a similar comapny - Duet [DUE].
Regards
Rick

 

[So_Cynical]

I would be somewhat hesitant to invest in Envestra etc etc

PVF i just cant let that post go....you seem to be suggesting that there's something bad about regulated income, something wrong with a steady, predictable, Adollar cash flow derived from a monopoly asset, so much of your post seems to be coming from the glass half empty side of the argument.

Infrastructure stocks do have alot in common with property stocks including assets that are expensive to replace, high levels of debt coming out of the GFC, flat yet consistent revenues and issues going forward with interest rates and debt re-financing.

All those reality's and perceptions are factored in to the SP and that's arguably why these stocks can look cheap and yield well..now if your a believer in the recovery and that life goes on and you can enbrace the concept and truth in conservative, contrarian investing.

Then its not to hard to see ENV along with alot of similar stocks doing well going forward, rolling over and reducing debt paying divis and getting on with business in a clearer, greener, gas friendly world.

One of the big potential (sleeper) share price drivers with the gas delivery stocks is CNG vehicles...its not to hard to see a slow and steady uptake of CNG powered vehicles in Australia, consumers plugging in the car when they get home to a home compressor and filling up via the domestic gas supply etc.

Anyway having said all that...ENV is a buy at under 0.49 only, not above IMO.

 

[ParleVouFrancois]

Sorry if I seemed that negative on the stock Cyn, I'm just pointing out the fact that money in the bank would've outperformed ENV if you bought in during the float. Thus the entire argument that safe regulated income streams etc is pretty negligible, given that you can have 100% risk free money in the bank outperforming it.

That being said I'm mainly focusing on the historical performance of ENV, perhaps it's a very strong buy today (as you are arguing the case) based on the yeild of 10% but even you'd have to admit the historical performance leaves much to want. Obviously your investment goals and performance measures are different to mine, this is a forum after all and people will have different ideas of what is a good or bad investment. Best of luck if you hold ENV.

 

[Ian]

ParleVouFrancois,
I do hold ENV but I was very interested to read your posts on them. Its an interesting view, although there is validity in some of So Cynical's comments too.
Fortunately I got into ENV prices roughly around current levels (some slightly more, some slightly less) for the steady divi yield for our SF and its worked well so far.
Would I be happy if I'd got in during the float ?. No and that is where your comments are at their most telling.
But I have a question if I can be so bold.
Posters often state "there are better options available" and unfortunately only rarely mention what they are. Noting the depth of consideration you give to investing I would be very interested to hear what your valued stock are at the moment.
cheers
Ian

 

[ParleVouFrancois]

I'm pretty sure "cross promoting" stocks is either disallowed or at the very least not encouraged, if you go to my blog (see signature for URL) you can see which companies I'm invested in, this will give you an idea of where I see "value" in the market today. I'm currently in quite a few stocks as you can see but by no means do I know the scope of undervalued small caps or medium caps, there are many undervalued companies out there that even someone like me who focuses on them misses.

 

[Ian]

Parlevoufrancois,
Many thanks. Your explanation explains why so few people do it.
I shall visit your blog with interest
thanks again
Ian

 

[So_Cynical]

Best of luck if you hold ENV.

I post all my buys and sells within a day or so on this forum, have done for 18 months...no i don't hold ENV but do watch with interest and am still kicking myself for not buying in back when i added it to a watch list at 33 cents.

Sorry if I seemed that negative on the stock Cyn, I'm just pointing out the fact that money in the bank would've outperformed ENV if you bought in during the float. Thus the entire argument that safe regulated income streams etc is pretty negligible, given that you can have 100% risk free money in the bank outperforming it.

Its all timing.

Anyone investing with a longer term outlook should be giving the utmost consideration to timing and where the stock in question is in its price cycle....i cant see how the "safe regulated income streams" argument is negligible in any way, has ENV not delivered 2 dividends per year for the last decade? have those revenues stopped flowing?

ENV has been a great dividend paying stock, its just that it hasn't been very profitable when you consider the reduction in the SP over the last decade and the capital loss that would represent for buy, hold and forget type investors.

There's a time to buy, a time to hold and a time to sell....what time is it now?
~

 

[Tysonboss1]

.

Also the business itself is highly regulated and vulnerable to long term periods of increased interest rates. The highly regulated by the government gas pipelines allow the operators to make a certain % each year on their invested capital in the pipeline. Naturally the operators charge as much as they can legally. Usually this isn't a very profitable business, but you can "soup" up the returns by funding it with debt, provided the debt has a lower % charge than the % allowed to be made by the operator (usually the case).

s

Interest rates are a factor that is covered when the pricing for charges on regulated assets are calculated.

Alot of the government regulations factor in interest rates, with allowable profit being 2% above the companies interest rate. factor with this the increases due to cpi, and as far as I can see you have a really boring longterm winner.

- I don't hold directly, however APA group holds them and I own some APA. I like the asset class in general.

 

[Tysonboss1]

Sorry if I seemed that negative on the stock Cyn, I'm just pointing out the fact that money in the bank would've outperformed ENV if you bought in during the float. Thus the entire argument that safe regulated income streams etc is pretty negligible, given that you can have 100% risk free money in the bank outperforming it.

That being said I'm mainly focusing on the historical performance of ENV, perhaps it's a very strong buy today (as you are arguing the case) based on the yeild of 10% but even you'd have to admit the historical performance leaves much to want. Obviously your investment goals and performance measures are different to mine, this is a forum after all and people will have different ideas of what is a good or bad investment. Best of luck if you hold ENV.

I think you are making a pretty common mistake here (as you have already accepted), that past performance is an indicator of future performance.

I would like to say this is the complete wrong way to look at the sharemarket.

A long term rise in a share price of a stock gives the lay investor a confidence that the stock is a sound investment right when it is perhaps well and truely over valued with low dividend yield and is due for prolonged stagnation or correction. On the other hand a share price that appears to have been going no where while the underlying company has steadily been building equity will look like a poor investment right when it is due for some solid gains and is paying a good dividend yield.

 

[ParleVouFrancois]

RE Tyson, I'm just saying if you wanted an income stream it would've been better to leave the money in the bank. Given the performance in the past this has been true. As neither you or I can predict the future with 100% accuracy, neither of us is correct in saying that ENV would be a buy today or not.

It merely depends on how you look at your investments when judging "income stream" stocks, do you count the capital change as part of the investment result, or just add up the dividends? If you invest today you'll get about a 12% return per annum, quite good for "lazy" money.

Also I am quite well versed in fundamental investing Tyson and understand 100% what you are saying, I'm just trying to add some balance to this thread i.e. why this stock isn't rerated higher, to say 9% yield given the lack of riskiness.

 

[Tysonboss1]

I took a quick look at this company and I must say I prefer APA.

1, apa owns 32% of env so you have exposure to these assets any way

2, apa has Transmission piplines where as env is mainly distribution piplines, So apa is going to see more growth in gas volumes due to increased gas fired electricity, LNG and other gas uses.

3, apa manage piplines so their operational costs are lower, plus they are getting a fee for managing other companies piplines.

4, apa have a stronger balance sheet, and dividends will grow quicker and are covered by a large free cash flow base.

5, apa own and mange a broader range of assets, that gives them exposure to electricity trasmission and generation.

 

[piggybank]

Daily P&F chart:-

 

[Newt]

Does anyone have a good grip on the reasons for today's price dip?

 

[Newt]

Does anyone have a good grip on the reasons for today's price dip?

Some info for those interested:
http://www.businessweek.com/news/2014-03-04/li-ka-shing-s-cki-puts-apa-s-1-dot-3-billion-envestra-bid-in-doubt

 

[Knobby22]

Thanks Newt

Explains a lot. It will be interesting to see what happens next.

 

[VSntchr]

Interesting to see the price dipping below 1.15.

The market is perceiving that the Chan's will vote NO to the scheme and the approximate value of the takeover of 1.15-1.25 depending on the mix chosen is being reflected as a low probability play now.

Wondering what kind of legal ramifications (or perhaps just ethical) are involved when directors vote against a proposal with an independent expert backing that it is in the 'best interests of shareholders'?