My quick financial analysis on CPN
Interesting to read the bearish note from Andre Meade of Lazard. I have recently dug through CPN's annual and quarterly reports, and have done a quick analysis on the number. Here is a brief summary of the analysis:
Information as of 8/1/02
Own ~70 gas-fired plants, totaling approx. 16,000 MW.
Total capitalization ~ $18.2b
Total debts: $13.1b: ~$8.7b in long-term notes at ~7.8% interest rate; $4.5b in project financing at LIBOR rate ~7%
Debt to capitalization ratio: ~72%
Revenues come primarily from three lines of businesses:
Gas-fired electricity generation; Geothermal generation and Oil and Gas production and marketing.
1. Gas-fired Electricity Generation:
'02 estimated operating capacity: ~12,500MW
Operation rate: ~75%
'02 estimated total output: ~80 million MWh
The spark spread of 65% of the output is fixed at $23/MWh. The remaining is estimated at $27-30/MWh
Weighted average spark spread: ~$25/MWh
Plant operation cost: ~7.5/MWh
Estimated '02 G&A expenses: ~$250mm, or ~3.2/MWh
==>Estimated gross margin from gas-fired power generation:
80*(25 - 7.5 - 3.2) = $1,144 million
2. Oil and gas production
Revenue estimated at ~300 to 400 mm
Cost estimated at ~150 mm
Gross margin: $150 - 200 mm
3. Steam power generation:
~100 mm
4. Power and gas trading and others:
~50 mm (net)
EBITA = 1140 + 150 + 100 + 50 = ~ $1,450 MM
Debt Management
In my opinion, the current biggest challenge to CPN are in 3 areas: 1) to generate sufficient cash flow to pay the interests of its $13b debt; 2) to refinance its debts as they become matured ($2b in '03 and $4b in '04); and 3) to fund its ambitious power plant construction program (which is estimated to use up ~2.6b this year). From our analysis above, it is clear that CPN should have no problem in generating enough cash (EBITA) from opeations to cover the debt interest -- debt default is definitely not an issue for CPN. However, the company appears to be facing a cash liquidity problem as debts become matured. I hope the company will soon start working with bankers and lenders to refinance the debts that come matured in '03 and '04. On top of this, it is critical that the company sell more assets to shore up its balance sheet, and to cancel or at least postpone its overly aggressive power plant construction programs.
Looking beyond '02, the company's cashflows from operation should increase substantially. For example, for '03, the company is expected to generate up to about 180 million MWh of power. Using a rather conservative spark spread of ~$24/MWh and the above exercise, I estimate the company to generate an EBITA of about $2.2 to 2.5 billion. Taking away an interest payment of ~$1b and Deprec&Amort of ~500MM, and a tax rate of 35%, the company could earn as much as $650 MM, or $1.8/sh. At less than $4 today, I think the upside/downside ratio is very favorable. |
