Infigen Energy writes down US assets by 11%

Free energy always comes at a cost.

Darryl Daté-Shappard

I started investing after finding a copy of Peter Lynch's "Beating the Street" in the English book section of a library in Japan, where I was living at the time in 1997. Seeing that regular people can find investment ideas just as easily as professionals, I used the philosophy of that book to invest in stocks in Japan, and later in Australia after moving in 2001. I also have experience in property investing, and went on to complete my masters degree in Applied Finance at QUT in Brisbane. I follow the investment style of Peter Lynch, Phillip Fisher and Warren Buffett-- knowing what you invest in, doing your homework to keep up with a stock's story and holding a healthy skepticism of what the stock market calls "value".

Published August 19, 2013 11:08 am AEST

Infigen Energy (ASX: IFN) has announced a capital write-down on wind-driven energy generation assets in the US. The Australia-based company creates and manages wind farms for electrical generation. Its full year report is due out at the end of August.

The write-down is a non-cash impairment of US$55 million (A$58.4 million), which is an 11% decrease down to US$430 million from US$485 million. The write-down resulted from a higher discount rate and lower gearing assumption of the assets, and will have no effect on energy generation and revenue.

To get an idea of what the full year report will show, the half-year report had total revenue of $140 million, third quarter revenue was $74.9 million and fourth quarter revenue was $77 million — totalling to $291.9. That is a 6.6% increase from last year's annual report.

The company's operating profit is a high percentage of revenue, however depreciation and amortisation are quite high themselves, reflecting the running cost of maintaining and replacing equipment. The benefit, though, is that pre-tax revenue is reduced, which lowers payable tax at the end of the year.

This write-down will reduce the balance sheet value of the assets, so ratios like return on equity will be in effect increased since they are based on shareholder equity, which is asset value less liabilities. This will be seen in the annual report.

Foolish takeaway

This highly leveraged company is saddled with a lot of debt repayment, so even with excellent operating profits and high depreciation schedules, the interest to be paid on the large loans it carries have created NPAT losses for the last three years. Loan levels have been decreasing, but a low rate. The wind may be free, yet catching and utilising it takes many years to make it pay off.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.

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