New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>Infratil<br>Another Leg to Stand On&nbsp;</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Infratil (IFT) has announced an offer to acquire between 50.1% and 60% of New Zealand's leading diagnostics imaging company 'Pacific Radiology' for an equity consideration of between NZ$292m and NZ$350m. This is IFT's second "mid sized" acquisition in six months within the diagnostic imaging space. Qscan and Pacific Radiology combined will make up approximately 10% of IFT's gross assets and as such make up a new "fifth leg" for IFT to stand on following the agreed sale of Tilt Renewables (TLT). IFT is currently valued at a discount to NAV for the first time since Australian Super's bid in early December 2020,&nbsp; we view the increased velocity in IFT's portfolio as positive and supportive of our view that the "double discount" that investors historically have applied to IFT is no longer warranted.&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/203/573/original/image_51388376021619741357893.png?1619741360" class="editor-image img-responsive" data-smartkarma-image-id="203573"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_8510556084446807485iwrmo3">
<ul>
<li><strong>Target price</strong>:&nbsp;Increased to NZ$8.25 from NZ$8.20</li>
</ul>
</div>
<div>
<h3>Acquisition of Pacific Radiology; valuation reasonable</h3>
</div>
<div id="m_8510556084446807485ih8vo">
<p>IFT's Pacific Radiology offer for a total enterprise value of NZ$867m represents a 12.6x to 13.3x EV/EBITDA multiple (based on normalised EBITDA for the year ended 31 March 2021). Using listed Australian peer, Integral Diagnostics’ FY21 EV/EBITDA&nbsp; of 12.4x and IFT’s prior Qscan acquisition valuation of 11.6x to 13.4x, we view Pacific Radiology's implied EV/EBITDA valuation as reasonable.</p>
</div>
<div>
<h3>IFT proxy index has outperformed IFT by +10% year to date</h3>
</div>
<div id="m_8510556084446807485iwzfo">
<p>IFT has underperformed our "proxy index" made up of listed holdings as well as peers of unlisted holdings&nbsp;by ~+10% year to date. We believe this under performance is likely reflecting a combination of&nbsp;fading expectations of an increased bid from Australian Super as well as not fully incorporating the increased TLT share price, given the sale will also trigger increased international portfolio performance fees. Going forward, we expect IFT to closely track our proxy index and would view a meaningful discount/(premium) as a buying/(selling) opportunity.&nbsp;&nbsp;</p>
</div>
<div>
<h3>Updating our forward NAV estimate</h3>
</div>
<div id="m_8510556084446807485izxnl">
<p>We make a minor change to our forward NAV estimate (+NZ 5cps), however, there are a number of moving parts within this, including; (1) increase to our TLT proceeds following the revised offer price, (2) performance fee estimate increase as a result of the TLT change, (3) lower Vodafone valuation reflecting changes to earnings, and (4) increased Trustpower valuation on the back of strong recent share price performance.</p>
</div>
<div>
<div>
<div><strong>Aaron Ibbotson</strong></div>
<div><a href="mailto:aaron.ibbotson@forsythbarr.co.nz" target="_blank" rel="noopener">aaron.ibbotson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 9 368 0024</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Matt Montgomerie</strong></div>
<div><a href="mailto:matt.montgomerie@forsythbarr.co.nz" target="_blank" rel="noopener">matt.montgomerie@forsythbarr.<wbr>co.nz</a></div>
<div>+64 9 368 0124</div>
</div>
</div>

Infratil Another Leg to Stand On&nbsp;

NEUTRAL
Infratil (IFT) has announced an offer to acquire between 50.1% and 60% of New Zealand's leading diagnostics imaging company 'Pacific Radiology' for an equity consideration of between NZ$292m and NZ$350m. This is IFT's second "mid sized" acquisition in six months within the diagnostic imaging space. Qscan and Pacific Radiology combined will make up approximately 10% of IFT's gross assets and as such make up a new "fifth leg" for IFT to stand on following the agreed sale of Tilt Renewables (TLT). IFT is currently valued at a discount to NAV for the first time since Australian Super's bid in early December 2020,&nbsp; we view the increased velocity in IFT's portfolio as positive and supportive of our view that the "double discount" that investors historically have applied to IFT is no longer warranted.&nbsp;


What's changed?&nbsp;



Target price:&nbsp;Increased to NZ$8.25 from NZ$8.20



Acquisition of Pacific Radiology; valuation reasonable


IFT's Pacific Radiology offer for a total enterprise value of NZ$867m represents a 12.6x to 13.3x EV/EBITDA multiple (based on normalised EBITDA for the year ended 31 March 2021). Using listed Australian peer, Integral Diagnostics’ FY21 EV/EBITDA&nbsp; of 12.4x and IFT’s prior Qscan acquisition valuation of 11.6x to 13.4x, we view Pacific Radiology's implied EV/EBITDA valuation as reasonable.


IFT proxy index has outperformed IFT by +10% year to date


IFT has underperformed our "proxy index" made up of listed holdings as well as peers of unlisted holdings&nbsp;by ~+10% year to date. We believe this under performance is likely reflecting a combination of&nbsp;fading expectations of an increased bid from Australian Super as well as not fully incorporating the increased TLT share price, given the sale will also trigger increased international portfolio performance fees. Going forward, we expect IFT to closely track our proxy index and would view a meaningful discount/(premium) as a buying/(selling) opportunity.&nbsp;&nbsp;


Updating our forward NAV estimate


We make a minor change to our forward NAV estimate (+NZ 5cps), however, there are a number of moving parts within this, including; (1) increase to our TLT proceeds following the revised offer price, (2) performance fee estimate increase as a result of the TLT change, (3) lower Vodafone valuation reflecting changes to earnings, and (4) increased Trustpower valuation on the back of strong recent share price performance.



Aaron Ibbotson
aaron.ibbotson@forsythbarr.co.nz
+64 9 368 0024





Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124



Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>Back on the 14 March, <a href="https://www.smartkarma.com/entities/tilt-renewables-ltd" target="_blank" data-smartkarma-citation="entities:24371:1" rel="noopener">Tilt Renewables Ltd (TLT NZ)</a> <a href="http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TLT/369079/342312.pdf" target="_blank" rel="noopener">announced</a> a binding agreement from <a href="https://www.smartkarma.com/entities/mighty-river-power" target="_blank" data-smartkarma-citation="entities:9933:1" rel="noopener">Mercury NZ Ltd (MCY NZ)</a> and PowAR by way of a Scheme at NZ$7.80/share, or a 99% premium to the undisturbed price.  PowAR is a partnership between <a href="https://www.smartkarma.com/entities/agl-energy-ltd" target="_blank" data-smartkarma-citation="entities:554:1" rel="noopener">AGL Energy Ltd (AGL AU)</a>, QIC, and Australia’s sovereign wealth fund.</p>
<div>
<p>Should the Scheme be successful, Tilt will sell its Australian assets to PowAR, and Mercury NZ acquires the New Zealand assets, including all future development operations. The Offer has the backing of Infratil and Mercury, holding 65.5% and 19.92% respectively.</p>
<p>After entering a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02363756_NPS-3A565326?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">trading halt</a> early last Friday, Tilt <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02364436-3A565443?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> it has amended the terms of the Scheme Implementation Agreement (SIA), such that PowAR/Mercury will now pay NZ$8.10/share</p>
<p>In addition to the increased price, the SIA has been amended to remove provisions allowing Tilt to evaluate any “<em>competing proposal giving greater certainty to all parties and Tilt shareholders that the transaction will complete by August</em>."</p>
<p>AGL also <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02364591-2A1293172?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">said</a> Tilt had received a competing proposal from a third party. Reportedly Canadian pension fund CDPQ made a bid of NZ$8/share Offer, and that Tilt tapped the consortium to match or beat that proposal.</p>
<p>The prospect of a last-minute gate-crasher now appears diminished. More below the fold.</p>
</div>

Back on the 14 March, Tilt Renewables Ltd (TLT NZ) announced a binding agreement from Mercury NZ Ltd (MCY NZ) and PowAR by way of a Scheme at NZ$7.80/share, or a 99% premium to the undisturbed price.  PowAR is a partnership between AGL Energy Ltd (AGL AU), QIC, and Australia’s sovereign wealth fund.

Should the Scheme be successful, Tilt will sell its Australian assets to PowAR, and Mercury NZ acquires the New Zealand assets, including all future development operations. The Offer has the backing of Infratil and Mercury, holding 65.5% and 19.92% respectively.
After entering a trading halt early last Friday, Tilt announced it has amended the terms of the Scheme Implementation Agreement (SIA), such that PowAR/Mercury will now pay NZ$8.10/share
In addition to the increased price, the SIA has been amended to remove provisions allowing Tilt to evaluate any “competing proposal giving greater certainty to all parties and Tilt shareholders that the transaction will complete by August."
AGL also said Tilt had received a competing proposal from a third party. Reportedly Canadian pension fund CDPQ made a bid of NZ$8/share Offer, and that Tilt tapped the consortium to match or beat that proposal.
The prospect of a last-minute gate-crasher now appears diminished. More below the fold.


Tilt Renewables: Mercury/PowAR's Bump Heads Off Third-Party Bidders

Jardine Strategic Holdings / Event-Driven


For the month of March, 16 new deals were discussed on Smartkarma with an overall announced deal size of ~US$21bn.


Clicking on the company name in the table below will take you to the entity page where you can read the initial insight(s) written by Smartkarma contributors on these new deals and follow-up discussions, or simply click on the insight link(s) below the name.





New Deals


Industry


Size (US$bn)


Type


Premium




Australia




Crown Resorts (CWN AU) 
Casino
6.3
Non-binding Scheme
36.8%


Crown Resorts (CWN AU): Blackstone Rolls the Dice



McPherson's Ltd (MCP AU) 
Cosmetics
0.1
On-Market
6.9%


McPherson (MCP AU): Unconditional On-Market Offer



Mainstream Group Holdings Ltd (MAI AU) 
Admin provider
0.2
Scheme
8.6%


Mainstream Group (MAI AU): Go-Shop Provision Makes It Interesting



Mortgage Choice (MOC AU) 
Mortgage broker
0.2
Scheme
66%



Mortgage Choice (MOC AU): REA's Scheme Offer









Hong Kong




China Youzan Limited (8083 HK) 
e-Commerce
4.3
Scheme
(30.2%)


China Youzan (8083 HK): Proposal Towards Relisting Youzan Tech








Japan




Funai Electric (6839 JP) 
Electronics
0.2
Tender Offer
25.2%


Funai Electric (6839 JP): Tender Offer Price Seems Light



IGNIS Ltd (3689 JP) 
Software
0.2
Tender Offer
52.12%


IGNIS (3689) MBO +63% Is Probably Too Light



Shoko Co Ltd (8090 JP) 
Trading co
0.1
Tender Offer
10.6%



Shoko (8090 JP) Tender Offer - Showa Denko Sells Too Cheap. Looks Bumpity Shoko (8090 JP) TOB:  Still Looks Bumpity




Takeei Corp (2151 JP)/ Rever Holdings Corp (5690 JP)

Staffing cos
0.5
Merger



Takeei (2151 JP) - Rever (5690 JP) Merger: TOPIX Event to Be Triggered








New Zealand




Tilt Renewables Ltd (TLT NZ) 
Energy
2.1
Scheme
99%


Tilt Renewables: Mercury/PowAr's Big Blow








Singapore




Global Cord Blood (CO US) 
Cord Blood
0.2
Pre-con proposal
65.4%


Global Cord Blood: Haitong Raids The Bank



Jardine Strategic Holdings (JS SP) 
Conglomerate
5.5
Amalgamation
20.2%



Jardine Matheson: Collapsing The Circularity
Jardine Strategic: What's Yours Is Mine
Jardine Strategic: SGM On The 12 April




Procurri Corporation (PROC SP) 
IT Hardware
0.1
Partial
32.7%


Procurri Corporation (PROC SP): Partial Tender Offers Scant Opportunity. Read more: https://skr.ma/FTYAh








Singapore Reinsurance (SRE SP) 
Reinsurance
0.2
Vol. Offer
17.8%


Singapore Reinsurance (SRE SP): Tender Offer Trading Tight








Thailand




Vinythai Public Co (VNT TB) 
Chemicals
0.3
Delisting Offer
57.8%


Vinythai (VNT TH): Delisting Offer From PTTGC








Philippines




2GO Group Inc (2GO PM) 
Logistics
0.2
MTO
30.49%


2GO Group (2GO PH): SMIC's MGO






Source: Smartkarma Insights





The average premium for the new deals announced (or first discussed) in March was ~33%, with a year-to-date average of ~32% (58 deals). This compares to the average premium for all deals in 2020 (158 deals) and 2019 (145 deals) of 31% and 31.5% respectively. 



Summary of News in March of Arb Situations On Smartkarma's Radar



(Again, click on the company names to take to you to the insights and/or discussion posts for a more comprehensive read-through on each situation)






Australia


Comments (with links to announcements &amp; insights)




3P Learning (3PL AU) 

No March Update




Asaleo Care Ltd (AHY AU) 

No March Update




Bingo Industries (BIN AU) 

No March Update




Coca Cola Amatil (CCL AU) 

12-Mar: The Scheme booklet for Coca Cola Amatil (CCL AU) has been registered with ASIC. The Scheme Meeting will be held on the 16 April. 




Think Childcare (TNK AU) 

4-Mar: Think Childcare (TNK AU): Trading Through Terms. Should You Fold Now?




Vitalharvest Freehold Trust (VTH AU) 

11-Mar: Vitalharvest (VTH AU): Macquarie Ups Its Offer
18-Mar:Vitalharvest (VTH AU): Roc Blinks, And Bumps




Vocus Communications (VOC AU) 

10-Mar: Vocus Comms (VOC AU): MIRA/Aware's Done Deal




WPP AUNZ (WPP AU) 

18-Mar: WPP AUNZ (WPP AU)'s Scheme booklet registered with the ASIC. Scheme Meeting to be held on the 21 April. 










Hong Kong


Comments (with links to announcements &amp; insights)




Beijing Digital Telecom (6188 HK) 

No March update




Beijing Jingneng Clean Energy (579 HK) 

1-Mar: Beijing Jingneng (579 HK): And That's a Fail




China Logistics Property Holdings (1589 HK) 

No March update




China Machinery Engineering (1829 HK) 

3-Mar: PRC approval, a pre-condition, to the Offer remains outstanding in a monthly update from China Machinery Engineering (1829 HK).




HKC Holdings (190 HK) 

No March update. Despatch of Scheme Doc pushed out to 30 April 




I.T Ltd (999 HK) 

22-Mar: I.T. (999 HK): Scheme Meeting 16 April. IFA Says Fair




Kerry Logistics Network (636 HK) 

18-Mar: Kerry Properties (683 HK) said it would: "declare a special dividend to distribute approximately 25% to 30% of such net proceeds" from the sake of shares in Kerry Logistics Network (636 HK).




New Century REIT (1275 HK) 

18-Mar: Circular despatched. EGM on the 12 April




Polytec Asset Holdings (208 HK) 

No March update. Polytec Asset Holdings (208 HK)extended the despatch of the Scheme Doc to 16 April.




Rivera Holdings (281 HK) 

No March update. Scheme Doc pushed way out to 7 June 




Sichuan Languang Justbon Service Group (2606 HK) 

11-Mar: There are some subtle changes to the MOU terms announced by Sichuan Languang Justbon Service Group (2606 HK) last night.  
Share to be acquired include 115,090,200 H shares AND 750,000 domestic shares or 65.04% of shares out, up from 64.62% in the initial announcement.  
 The price per H shares will be RMB42.8546/share , up from RMB42.1105.
23-Mar: Languang Justbon (2606 HK): Be Wary Of Chasing The Delisting Bump




China Traditional Chinese Medicine (570 HK) 

1-Mar: An update to say there is no update.




Zhejiang New Century Hotel Management Group (1158 HK) 

No March update




Zhuhai Holdings Investment (908 HK) 

No March update. The despatch of the Scheme Doc for Zhuhai Holdings Investment (908 HK) has been pushed back to the 21 April.










India


Comments (with links to insights)




Engineers India (ENGR IN) 

No March update




INEOS Styrolution India Limited (INEOS IN) 

No March update




National Aluminium (NACL IN) 

No March update




Vedanta Ltd (VEDL IN) 

13-Mar: Vedanta (VEDL) Awaits Open Offer Revision. Now Less Event-y More Commodity-y
17-Mar: Vedanta (VEDL) Open Offer Raised in Price and Size!










Japan


Comments (with links to announcements &amp; insights)




Being Co Ltd (4734 JP) 
25-Mar: The Tender Offer for Being Co Ltd (4734 JP) was successful. The bidder now has 88+%.



BeNEXT Group (2154 JP) 
25-Mar: BeNEXT - Yumeshin Merger: FTSE Upweight Is a Positive Surprise




Cocokara Fine (3098 JP) 
10-Mar: Matsukiyo-Cocokara Situation Gets Its Activist Noise Started 1-Mar:MatsuKiyoCocokara Merger and Implied Forward Forecasts which followed MatsukiyoCocokara &amp; Co - The Merger




Dynac Holdings Corporation (2675 JP) 
No March update



Honshu Chemical Industry (4115 JP) 

No March update




Japan Asia (3751 JP) 

1-Mar: Japan Asia Group (3751) : Defense Against Hostile TOB Is Bad News
18-Mar: Murakami-San Launches New JAG (3751) Tender Offer




Maeda Road Construction Co (1883 JP) 

13-Mar: Maeda Corp (1824 JP) has bought 21.8113mm shares of Maeda Road Construction Co (1883 JP).The pro-ration is 60.2913754%




N Field Co Ltd (6077 JP) 

No March update




Sakai Ovex (3408 JP) 

8-Mar: Savai Ovex MBO - A Very Weak Bump
28-Mar: Sakai Ovex Tender Offer Fails But The Stock Gains an Activist




Sanken Electric (6707 JP) 

9-Mar: Effissimo, Sanken, and Allegro - Thinking About the Future
25-Mar: Effissimo Capital Management held 24.05mm shares prior to launching its tender offer and it appears it managed to buy 24.04mm shares in the Tender Offer. That gets them to 19.93%, up from 9.97%. 




Tokyo Rope Mfg (5981 JP) 

9-Mar: After all was said and done, the Tender Offer was completed, with Nippon Steel Corporation (5401 JP) getting to 19.9% after buying 1.625mm shares at JPY 1500/share. Pro-ration was quite high at 75.86%. 




Tsukui Corp (2398 JP) 

25-Mar: The Tsukui Corp (2398 JP) Tender Offer/MBO was completed successfully. The minimum hurdle was 29.316mm shares. The actual shares received in the Tender was 45.719mm or 64.07% of shares out. This will get squeezed out in the EGM as the non-tendering parties join with MBK and they have close to 90% together.




Unimat Retirement Community (9707 JP) 

26-Mar: the Unimat Retirement Community (9707 JP) Tender Offer was successful. The bidder got to 80.53%. An EGM will follow along with a squeezeout/delisting. The cowbell has not been very loud.










New Zealand


Comments (with links announcements)




Infratil Ltd (IFT NZ) 

No March update











Philippines


Comments (with links announcements)




Lopez Holdings (LPZ PM) 

19-Mar: The Tender Offer for Lopez Holdings (LPZ PM) closed on the 8 March. The accepted Tender Offer Shares were intended to be crossed through the PSE eight business days after the close of the Tender Offer Period or on 18 March. That has now taken place. The public float now stands at 29.32%. 











Singapore


Comments (with links to announcements &amp; insights)




CEI Limited (CEI SP) 

19-Mar: Offer declared unconditonal




GL Ltd (GLL SP) 

1-Mar: SIAS Questions GL Limited's Offer: More Bark Than Bite 15-Mar:  GL Limited: Guoco Bumps &amp; Declares Offer Unconditional 18-Mar: Guoco Group Ltd (53 HK) gets &gt;90% and will now move to compulsory acquire shares in GL Ltd (GLL SP).




Penguin International (PBS SP) 

24-Mar: Penguin International (PBS SP): Offer Extended, No Bump, Time to Unwind
26-Mar: 75% threshold surpassed: As at 6.00 p.m. (Singapore time) on 25 March 2021, the Offeror has gained control of 167,789,621 shares, representing approximately 76.21% of the total number of shares in the Company. 




Soilbuild Business Space REIT (SBREIT SP) 

11-Mar: Phew - that was close. 89.32% voted FOR but the headcount scrapped in at 56.56%.  Last day of trading in Soilbuild Business Space REIT (SBREIT SP) was the 26 March.










Taiwan


Comments (with links to announcements &amp; insights)




Jih Sun Financial (5820 TT) 

20-Mar: Jih Sun Financial Deal Down To The Wire
23-Mar: Jih Sun Tender Offer Successful - Now the Squeezeout






<h2>Infratil<br>Great Exit, Now for the Hard Part</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Tilt Renewables (TLT) have announced they have entered a Scheme Implementation Agreement (SIA) with Powering Australian Renewables (PowAR) and Mercury (MCY). Under the SIA TLT's shareholders will receive NZ$7.80 per share resulting in cash proceeds of ~NZ$1.9b for Infratil's (IFT) 65% stake in TLT and is set to trigger a total incentive fee of just over NZ$200m. TLT was spun out of Trustpower (TPW) in October 2016, a core component of IFT's portfolio since inception in 1994. However, looking at IFT's returns since TLT was listed, the sale price implies an unlevered IRR of ~40% before fees and ~35% after fees. This is a very strong exit even in light of interest rate tail winds. The next question is — where to from here? We would expect the lion's share of the net NZ$1.9b proceeds to be re-deployed into new assets. However, we would not rule out some form of capital distribution.&nbsp;&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/680/original/image_5153539441615856436989.png?1615856441" class="editor-image img-responsive" data-smartkarma-image-id="194680"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_-7392844383792493227iwrmo3-2">
<ul>
<li><strong>Target price</strong>:&nbsp;Increased to NZ$8.20 (from NZ$7.85) reflecting increased TLT sale proceeds</li>
</ul>
</div>
<div>
<h3>What a difference three months makes; Australian Super bid likely firmly off&nbsp;the table but conglomerate discount will not return</h3>
</div>
<div id="m_-7392844383792493227iqd8b">
<p>The Australian Super Fund has gone quiet since its rejected bid of IFT three months ago. We believe that TLT and Canberra Data Centres (CDC) were the two main assets of interest to Australian Super, with one of them now likely gone we believe a new bid is off the table. However, we do believe that the bid has contributed to a "permanent" removal of IFT's historic double discount. In our report "Reverting to a New Normal" published 17th February 2021 we removed&nbsp; the 10% conglomerate discount that IFT has historically traded on. The disciplined TLT exit solidifies our view that the market is unlikely to return to applying a conglomerate discount for the foreseeable future.&nbsp;</p>
</div>
<div>
<h3>Buying well is harder than selling well in today's markets</h3>
</div>
<div id="m_-7392844383792493227i5kjl">
<p>With public market valuations at or close to all time highs and private valuations even higher, we would describe the market as a "sellers" market. IFT has done an excellent job of achieving a high price for TLT, but now finds itself in a more challenging situation; re-deploying the proceeds. We see ample room to re-deploy a meaningful proportion of the proceeds into current portfolio companies as well as expanding on existing platforms. However, at its February investor day IFT also outlined an ambition to branch out of its traditional strong hold of scalable infrastructure into areas such as Artificial Intelligence and Robotics. Major acquisitions in new areas comes with increased risk and we believe that it will be difficult to find attractively priced targets in these areas.&nbsp;&nbsp;</p>
</div>
<div>
<h3>Near term NZ$300m in fees; medium term should moderate&nbsp;</h3>
</div>
<div id="m_-7392844383792493227i85wf">
<p>The sale of TLT will bring about heightened near-term fees with FY21 to be based on a "undisturbed" TLT share price of NZ$5.44 resulting in a combined fee of NZ$217m. In addition, a realised fee upon completion of the sale is estimated at NZ$107m (payable April 2022). Medium term we would expect the fee to moderate as IFT's total capital lowers.</p>
</div>
<div>
<div>
<div><strong>Aaron Ibbotson CFA</strong></div>
<div><a href="mailto:aaron.ibbotson@forsythbarr.co.nz" target="_blank" rel="noopener">aaron.ibbotson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 9 368 0024</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Matt Montgomerie</strong></div>
<div><a href="mailto:matt.montgomerie@forsythbarr.co.nz" target="_blank" rel="noopener">matt.montgomerie@forsythbarr.<wbr>co.nz</a></div>
<div>+64 9 368 0124</div>
</div>
</div>

Infratil Great Exit, Now for the Hard Part

NEUTRAL
Tilt Renewables (TLT) have announced they have entered a Scheme Implementation Agreement (SIA) with Powering Australian Renewables (PowAR) and Mercury (MCY). Under the SIA TLT's shareholders will receive NZ$7.80 per share resulting in cash proceeds of ~NZ$1.9b for Infratil's (IFT) 65% stake in TLT and is set to trigger a total incentive fee of just over NZ$200m. TLT was spun out of Trustpower (TPW) in October 2016, a core component of IFT's portfolio since inception in 1994. However, looking at IFT's returns since TLT was listed, the sale price implies an unlevered IRR of ~40% before fees and ~35% after fees. This is a very strong exit even in light of interest rate tail winds. The next question is — where to from here? We would expect the lion's share of the net NZ$1.9b proceeds to be re-deployed into new assets. However, we would not rule out some form of capital distribution.&nbsp;&nbsp;


What's changed?&nbsp;



Target price:&nbsp;Increased to NZ$8.20 (from NZ$7.85) reflecting increased TLT sale proceeds



What a difference three months makes; Australian Super bid likely firmly off&nbsp;the table but conglomerate discount will not return


The Australian Super Fund has gone quiet since its rejected bid of IFT three months ago. We believe that TLT and Canberra Data Centres (CDC) were the two main assets of interest to Australian Super, with one of them now likely gone we believe a new bid is off the table. However, we do believe that the bid has contributed to a "permanent" removal of IFT's historic double discount. In our report "Reverting to a New Normal" published 17th February 2021 we removed&nbsp; the 10% conglomerate discount that IFT has historically traded on. The disciplined TLT exit solidifies our view that the market is unlikely to return to applying a conglomerate discount for the foreseeable future.&nbsp;


Buying well is harder than selling well in today's markets


With public market valuations at or close to all time highs and private valuations even higher, we would describe the market as a "sellers" market. IFT has done an excellent job of achieving a high price for TLT, but now finds itself in a more challenging situation; re-deploying the proceeds. We see ample room to re-deploy a meaningful proportion of the proceeds into current portfolio companies as well as expanding on existing platforms. However, at its February investor day IFT also outlined an ambition to branch out of its traditional strong hold of scalable infrastructure into areas such as Artificial Intelligence and Robotics. Major acquisitions in new areas comes with increased risk and we believe that it will be difficult to find attractively priced targets in these areas.&nbsp;&nbsp;


Near term NZ$300m in fees; medium term should moderate&nbsp;


The sale of TLT will bring about heightened near-term fees with FY21 to be based on a "undisturbed" TLT share price of NZ$5.44 resulting in a combined fee of NZ$217m. In addition, a realised fee upon completion of the sale is estimated at NZ$107m (payable April 2022). Medium term we would expect the fee to moderate as IFT's total capital lowers.



Aaron Ibbotson CFA
aaron.ibbotson@forsythbarr.co.nz
+64 9 368 0024





Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124



Infratil: Great Exit, Now for the Hard Part

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<p>After <a href="http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/IFT/364532/336831.pdf" target="_blank" rel="noopener">announcing</a> a strategic review of its 65.5% shareholding in <a href="https://www.smartkarma.com/entities/tilt-renewables-ltd" target="_blank" data-smartkarma-citation="entities:24371:1" rel="noopener">Tilt Renewables (TLT NZ)</a> on the 7 December, a day later, renewable energy specialist <a href="https://www.smartkarma.com/entities/infratil-ltd" target="_blank" data-smartkarma-citation="entities:596:1" rel="noopener">Infratil Ltd (IFT NZ)</a> received a non-binding Offer, by way of Scheme, from AustralianSuper, Australia's largest superannuation fund. The NZ$7.43/share Offer was a 22.2% premium to Infratil's last close, and a lifetime high. This was discussed in <em><a href="https://skr.ma/RKPFp" target="_blank" rel="noopener">Infratil (IFT NZ): Big Super's Infrastructure Grab</a>.</em></p>
<p>On the 4 February, Tilt <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02337662-3A560626?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">said</a> it has received a number of non-binding indicative proposals.</p>
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<h3>The New News</h3>
<p><a href="https://www.smartkarma.com/entities/tilt-renewables-ltd" target="_blank" data-smartkarma-citation="entities:24371:1" rel="noopener"></a>Tilt has <a href="http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TLT/369079/342312.pdf" target="_blank" rel="noopener">announced</a> a binding agreement from <a href="https://www.smartkarma.com/entities/mighty-river-power" target="_blank" data-smartkarma-citation="entities:9933:1" rel="noopener">Mercury NZ Ltd (MCY NZ)</a> and PowAR by way of a Scheme. PowAR is a partnership between <a href="https://www.smartkarma.com/entities/agl-energy-ltd" target="_blank" data-smartkarma-citation="entities:554:1" rel="noopener">AGL Energy Ltd (AGL AU)</a> and QIC on behalf of its managed clients, the Queensland Government Insurance Fund and the Future Fund, Australia's sovereign wealth fund.</p>
<p>Under the proposal, Mercury will acquire Tilt’s New Zealand assets and, following that, PowAR will acquire 100% of the outstanding shares in Tilt for NZ$7.80/share, or a 99% premium to the undisturbed price. </p>
<p>Infratil and Mercury, holding 65.5% and 19.92% respectively, have agreed to vote in favour of the Scheme. Therefore the requisite Tilt shareholders’ approval is certain to be secured.</p>
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<p>More below the fold.</p>
</div>


After announcing a strategic review of its 65.5% shareholding in Tilt Renewables (TLT NZ) on the 7 December, a day later, renewable energy specialist Infratil Ltd (IFT NZ) received a non-binding Offer, by way of Scheme, from AustralianSuper, Australia's largest superannuation fund. The NZ$7.43/share Offer was a 22.2% premium to Infratil's last close, and a lifetime high. This was discussed in Infratil (IFT NZ): Big Super's Infrastructure Grab.
On the 4 February, Tilt said it has received a number of non-binding indicative proposals.


The New News
Tilt has announced a binding agreement from Mercury NZ Ltd (MCY NZ) and PowAR by way of a Scheme. PowAR is a partnership between AGL Energy Ltd (AGL AU) and QIC on behalf of its managed clients, the Queensland Government Insurance Fund and the Future Fund, Australia's sovereign wealth fund.
Under the proposal, Mercury will acquire Tilt’s New Zealand assets and, following that, PowAR will acquire 100% of the outstanding shares in Tilt for NZ$7.80/share, or a 99% premium to the undisturbed price. 
Infratil and Mercury, holding 65.5% and 19.92% respectively, have agreed to vote in favour of the Scheme. Therefore the requisite Tilt shareholders’ approval is certain to be secured.


More below the fold.


Tilt Renewables: Mercury/PowAr's Big Blow

New Zealand

Infratil Limited is an infrastructure investment company. The Company invests in airports, energy such as renewable and waste-energy, and public transportation.

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