AES Corp. Adding Irish Assets - Analyst Blog

AES Corp. (AES) entered into an agreement with BG Energy Holdings (BG) to acquire its subsidiary Premier Power Limited for £99 million or approximately $150 million. Premier Power owns 1,246 MW natural gas-fired Ballylumford Power Station in County Antrim, Northern Ireland. 

The deal is expected to close by the second half of 2010 subject to approval by the Northern Ireland Authority for Utility Regulation and the Northern Ireland Department of Enterprise, Trade and Industry. Upon obtaining required consents, AES’ subsidiary, AES Ballylumford Holdings Limited, will acquire Premier Power through an all cash transaction.
 
This acquisition of Ballylumford facility will boost AES Corporation’s Northern Ireland based operational capacity to 1,868 MW. The company already has a 622 MW Kilroot facility in Northern Ireland, which it acquired way back in 1992. Upon closing of the Premier Power transaction, AES Corp. will hold approximately 15% of the generation capacity of the electricity market of both Northern Ireland and the Republic of Ireland.
 
Arlington, Virginia-based AES Corp. is a global power company that owns and operates electric power generation and distribution businesses in 29 countries. The company’s operations are divided into three segments: Regulated Utilities, Contract Generation, and Competitive Supply. The company clocked 2009 revenues of $14 billion and owns and manages $40 billion in total assets.
 
AES Corp.’s businesses are spread across 5 continents in 31 countries, representing a geographically diverse earnings base. Geographic disparity in the target markets of AES Corp. has resulted in a portfolio that is well-positioned for capitalizing on regional differences in power prices and weather-driven demand. This insulates the company from any region specific risk.
 
By fuel type, AES’s capacity portfolio is approximately 41% coal, 39% gas, 16% hydro and 4% oil. Revenues are earned equally from generation and distribution, and almost 80% of generation revenues are under long-term contracts.
 
AES Corp.’s focus on long-term supply contracts exposes it to commodity price risk. The company would be unable to pass on any escalation in prices of coal and natural gas to its customers. Profitability at its regulated utilities depends on the regular rate relief around the globe from their service countries.
 
Also the company’s substantial generation capacity under construction in emerging countries may face cost escalation and over-runs. The company is locked into fixed earnings by virtue of its long-term delivery contracts for utility projects and is likely to face the impact of cost over-runs.
 
AES is a non-dividend paying stock in an industry (utilities and energy merchants), which has a high average dividend yield (Zacks industry average is 3.6%). Thus, we maintain our Underperform recommendation on the Zacks Rank #5 stock.
 
In the near-term, AES Corp.’s Zacks Rank #2 peers who have a Buy recommendation, like Companhia Energetica de Minas Gerais (CIG) and Alliant Energy Corp. (LNT) look attractive.

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