Free share tips posted weekly! This week’s free share tip is OPG Power Ventures (OPG).

When AIM-listed OPG Power Ventures released final results at the end of September the price of coal, which was rising sharply at the time, was highlighted as a potential issue.  More recently, the price of coal has moved substantially lower than the peak which was reached.  Although this appears to have fed through to the company’s share price to some extent, we believe that now could be a good time to invest.

The company operates and develops power generation assets in India.  It has been listed on AIM since 2008 and has grown from 20 MW of generating capacity to 476 MW.  India is seen as an attractive market for power generation as it has low and rising per capita consumption of electricity.  Overall economic growth forecasts for the country also mean that this should be a good time to invest.

On a micro level, results for the year ended 31 March 2021 were reassuring.  Generation, including deemed generation, for the full year was 2.1 billion units.  This represented a 22.4% reduction in generation versus the prior year due to the Covid-19 related lockdown across India.  Average Plant Load Factor was 58% (2020: 75%) and average realised tariff was Rs5.52 (2020: Rs5.67).  Revenue was £93.8m (2020: £154.0m) and Adjusted EBITDA was £33.7m (2020: £31.2m).  Profit from continuing operations was £13.1m (2020: £10.2m) and profit for the year was £14.1m (2020: £8.0m).  Reported earnings per share were 3.52p versus 2.11p a year earlier.

The balance sheet is in good shape and net debt was reduced significantly during the last financial year.  Over the course of the year net debt was slashed from £53.4m to £16.2m.  The net debt to Adjusted EBITDA ratio was reduced from 1.7 to 0.5 due to the repayment of term loans and working capital loans, foreign exchange movement and strong cash collection during the year.  Cash flow from continuing operations before changes in working capital was £36.8m (2020: £48.2m).  Net cash flow from operating activities was £40.2m versus £30.6m in the prior year, primarily due to collections of receivables and contractual claims relating to previous periods.  These are significant levels of cash given the market capitalisation and level of net debt.

Given the nature of the business and its reliance purely on India, this is by no means a one-way bet.  The company’s directors also hold over half of the shares in issue, which from one perspective could be seen as a potential problem.  However, this also aligns the goals of the directors with that of other shareholders and if the coal price remains at more favourable levels sentiment from potential investors should improve.  The net debt position has improved significantly and this also reduces risk, with the magnitude of the level of debt held being modest.  Over the long term the fundamental value of the business could be reflected by a far higher share price and the shares are SPECULATIVE BUY.

Read more of our free share tips here.