Daily ShareChat: NZ Windfarms

By Jenny Ruth

Monday 14th September 2009

The most likely channel for NZ Windfarms' shareholders to realise value in the medium term is through takeover activity, says Goldman Sachs JB Were analyst Matt Henry.

"As a one wind farm operator, we believe NZ Windfarms is burdened by lack of scale or scope economies," Henry says.

"For a major electricity generator, NZ Windfarms (including a takeover premium) would likely represent a significantly cheaper investment in generation relative to physical construction," he says.

"Furthermore, we believe an integrated electricity generator-retailer can derive greater value from wind assets than a stand-alone operator."

This would be through economies of scale, providing a significant reduction in overhead costs per megawatt hour, through economies of scope by integrating wind with peaking power stations, such as hydro and gas, and through capital structure efficiency, he says.

NZ Windfarms is in dispute with turbine manufacturer Windflow Technology over the lack of IEC certification which needs to be resolved before NZ Windfarms raises additional funds to complete its 97 turbine wind farm Te Rere Hau near Woodville.

"Significant turbine, funding and execution risks are likely to weigh on NZ Windfarms through the near term," but its sale to a major generator represents upside risk, Henry says.

BROKER CALL: Goldman Sachs JB Were rate NZ Windfarms (NZX: NWF ) as HOLD.

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