TSI's moderate to fresh profits

With all the doom and gloom in the financial market, one fund with a green bent is exceeding its targets.

Transfield Services Infrastructure Fund’s 2008 profit was 25% above guidance, and chief executive Steve Macdonald says the outlook for the next financial year is similarly rosy.

“We’re a 12–13% yield stock with over 60% tax-deferred,” he says. “If you were to think you can get 18% out of a long-term contracted investment, it’s a pretty good deal.” Macdonald says guidance distributions will continue to grow at 3%, with a 25–30% increase in earnings.

As well as stakes in two water filtration plants, in Melbourne and Sydney, TSI owns four wind farms and has an eye to develop 13 more in the next five to 10 years. Macdonald says that at least a quarter of profits for 2008-09 will come from wind farms. “We’ve got 13 sites, which is nearly 1200 megawatts to develop, and we’re full steam ahead on developing that. So within the not-too-distant future, there’ll be a lot more wind in our fund.”

He adds: “Australia’s probably got one of the best wind resources in the world. We’ve got a coastline that has a tremendous wind resource; we’ve got latitude where there’s lot of wind across the southern part of the country. And yet we’re one of the least users of that wind resources.”

The issue is a lack of financial incentive, he says. “It does cost more than a coal-fired power station if you don’t value C02. If you’re looking at it from a perspective of 'how much does it cost to build and how much do I get from my energy?’ then it doesn’t stack up. It needs support,” he says.

“It all comes down to how much we’re prepared to invest in the network, because we’ve got lots of places we could throw wind farms and we could meet the renewable energy target (20% renewable energy by 2020) purely from wind if we put enough money as a community into the network that supports the grid.”

Macdonald insists sentiment has not been affected by the turmoil engulfing other listed infrastructure players, such as Babcock & Brown Wind Partners, saying TSI is 95% contracted for this financial year and its income stream is stable.

Victor Bivell, editor of EcoInvestor, says although the fund is not a pure environmental play, its wind farm and water filtration assets earn TSI the thumbs up. The only negative in his view, is TSI’s stakes in two coal-fired power stations, particularly Loy Yang in Victoria.

But Macdonald says that in the future, TSI would consider divesting its “non-core” assets. “Over time, at the right time and for the right price, I would see divesting of those and focusing on our 100%-owned assets.”

Wind technology is the most mature group within the Clean Technologies sector, accounting for $US50.2 billion of new investments globally last year, according to Chris Greenwood, of the UK-based New Energy Finance, which provides research to investors in renewable energy, low-carbon technology and the carbon markets.

He says a total of $US148.4 billion was invested in clean energy last year, up by more than 60% from 2006. And according to New Energy Finance research, clean energy stocks have outperformed the Amex oil, Nasdaq and S&P 500 indices over the past couple of years, with the clean energy sector growing by 56% last year.

TSI, which is listed in June last year, is 49% owned by Transfield Services. It has traded in a range between $1 and $1.70 since listing. Its share price of $1.50 values it at $400 million.