Spark Infrastructure

Spark Infrastructure has announced its disappointment after being outbid for the Sydney desalination plant by a consortium including Ontario Teachers' Pension Plan and Hastings Funds Management. In stark contrast, investors were relieved and have since bid the security price back above $1.50.

With no immediate plans to raise capital or make an acquisition, we considered upgrading Spark to Hold based on its current valuation. But there were two major red flags in the announcement. Twice it mentioned that management had and would consider acquiring assets overseas. While this may never happen, it shows management's ambitions are grander than we imagined. Given the infrastructure sector has recently been divesting overseas assets and reducing debt in order to pay more sustainable distributions, it seems Spark has learned nothing from the global financial crisis.

If you ignored our previous recommendation to sell then you might consider holding on a little longer. To help protect your investment we’ll be writing to Spark Infrastructure’s board. Hopefully that will make the company think twice before diluting the wonderful assets that they currently own. We’ll keep covering Spark as events unfold but, with the security price increasing 6% since 20 Apr 12 (Sell – $1.42), we’re sticking with SELL.