The Spark Infrastructure Group (ASX: SKI) share price is edging higher today after the electricity distribution company reported its FY21 half-year earnings.
In early trade today, Spark shares are swapping hands for $2.83, a gain of 0.35%.
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Spark Infrastructure share price gains on growth in operating cash flow
The company outlined several investment highlights in its report, including:
- 4.5% growth in regulated and contracted asset base to $6.9 billion
- Look-through net operating cash flow of $201 million, a gain of 6.6% on the year
- Standalone net operating cash flow up 14.7% to $51.6 million
- Look-through earnings before interest, taxes, depreciation and amortisation (EBITDA) of $402 million, down 7% year-on-year
- Interim 2021 distribution of 6.25 cents per security, with franking credits of 1.5 cents per security
What happened in FY21 for Spark Infrastructure?
In a plus for the Spark Infrastructure share price, the company recognised a 4.5% increase in its regulated and contracted asset base as TransGrid undertook a "number of significant augmentation upgrades" to its network.
As a result, it grew operating cash flows considerably over the year, with standalone net operating cash flow expanding approximately 15% in 1H FY21.
Spark has a 15% interest in TransGrid, and through this company was able to reach a final investment decision to build EnergyConnect. This is a "900km high-capacity electricity interconnector" that will run between SA and NSW.
The company received a total of $1.8 billion in "regulatory capital allowance" for the project in 2017–18.
Moreover, Spark recorded an "investment-grade balance sheet" with "debt facilities of $400 million, with cash and equivalents of approximately $53 million".
Finally, the company received a binding offer for acquisition from a consortium of investors in a "scheme implementation deed", for an all-cash offer of $2.95 per stapled security.
This represents a 4.2% premium to the current Spark Infrastructure share price.
What did management say?
Spark Infrastructure chair Dr Doug McTaggart said:
The Board of Spark Infrastructure is pleased to deliver an interim distribution of 6.25 cents per security to our securityholders in line with guidance provided at the beginning of 2021. The high proportion of regulated and contracted assets in our portfolio of high quality and scarce essential infrastructure businesses provides us with confidence around cash flows and enables us to deliver sustainable growth to support the energy transition while ensuring our distributors remain attractive and reliable.
What's next for Spark Infrastructure and its share price?
Spark has guided a final distribution of 6.25 cents per security for FY21, bringing the annual payment to 12.5 cents. Further, it expects a tax refund of approximately $45 million in 2H FY21.
The company outlined it had received "new determinations" for SA and Victoria power networks. Hence, this provides "regulatory certainty for the next 4 and 5 years respectively".
Moreover, Spark is "growing (a) high-quality pipeline of early-stage renewables projects". These include the Dinawan Energy Hub for instance.
In addition, the acquisition scheme with the consortium of investors will be put to vote in meetings that are pencilled in for the end of CY2021.
What effect this will have on the Spark Infrastructure share price remains to be seen.
Spark shares have climbed 34% this year to date, outpacing the S&P/ASX 200 index (ASX: XJO)'s return of about 14% since January 1.
