The Infigen Energy Ltd (ASX: IFN) share price is trading flat today, despite the utilities company announcing a 92% decrease in profits. Infigen released its full year results this morning, which revealed a $37 million drop in profits due to one-off items and the impact of COVID-19.
What does Infigen do?
Infigen Energy generates renewable energy from its fleet of wind farms, one of the largest in Australia. Because renewable energy is inherently intermittent, Infigen also operates firming assets including a gas peaker in NSW, a battery in SA, and gas turbines in SA.
Control of Infigen was effectively taken over by Iberdrola SA this month when the latter acquired in excess of 50% of Infigen's stapled securities. This means Iberola can cast the majority of votes at a general meeting, controlling the composition of the board and strategic direction of Infigen. Ibrerdrola intends to conduct a review of Infigden's corporate structure, assets, and businesses.
How did Infigen perform in FY20?
Infigen increased its renewable energy generation by 10% in FY20, leading to a 3% increase in net revenue which reached $235.6 million. But net profit after tax fell 92% to $3.5 million due to one-off items. Higher renewable energy generation was also partly offset by lower electricity prices. The commercial and industrial sector was a major contributor to growth, with net revenue increasing 30% to $78.1 million. As this sector grows, Infigen's customer base becomes diversified, reducing exposure to counterparty risk. In FY21, no single customer accounts for more than 20% of Infigen's electricity sales.
Infigen's business continues to demonstrate operational resilience to the pandemic. Nonetheless the decline in domestic economic activity and fuel prices is having a substantial impact on electricity prices and Infigen's near-term earnings outlook. Infigen is experiencing a combination of reduced commercial and industrial demand together with high plant availability during the COVID-19 period. There has been a deep and sustained reduction in international fuel prices that has flowed through to domestic electricity prices. These combined impacts offer a sobering view of electricity prices in the short- to medium-term.
Given these factors, Infigen currently expects net revenue and earnings before interest, taxes, depreciation and amortisation (EBITDA) to be materially lower in FY21 compared to FY20. Dividends have been suspended indefinitely in light of the likely requirement for additional capital for future growth.
What's the outlook for Infigen?
Over the past 3 years, Infigen has increased renewable energy sales by a total of 40% and says many opportunities lay ahead. The company's renewable energy sales represent just ~1% of total generation in the national electricity market and customer demand for clean energy and carbon offset products continues to grow by the day. The company believes that when normalisation of the energy market resumes, its capacity to grow remains highly prospective.
The Infigen Energy share price is flat for the day, sitting 92 cents at the time of writing.
