fw : analysis of orion power acquisition ; maintaining belowconse nsus estimates ; reducing target price
- - - - - original message - - - - -
from : stein , neil [ mailto : neil . stein @ csfb . com ]
sent : friday , september 28 , 2001 7 : 02 am
to : undisclosed - recipients
subject : rri : analysis of orion power acquisition ; maintaining
belowconse nsus estimates ; reducing target price
>
good morning ,
attached , please find our fc note on reliant resources .
summary :
1 . on september 27 , 2001 , rri announced it would acquire orion power
for $ 26 . 80 in an all - cash transaction .
? 2 . in our view this deal has very positive implications for
the sector . the purchase price is essentially in - line with our estimate of
the private market value of orn ' s asset portfolio ( $ 26 . 83 ) . overall , the
deal gives us addition confidence in our valuation framework and reinforces
our view that valuations in the sector are extremely attractive .
? 3 . rri is leaving unchanged its 2002 eps guidance of
$ 2 . 05 - $ 2 . 15 . in doing so , rri noted that the earnings contribution from
this deal ( + $ 0 . 30 ) will offset the negative impact of sluggish conditions in
the western power markets .
? 4 . our 2001 and 2002 eps estimates remain unchanged at $ 1 . 62
and $ 1 . 95 . our 2002 estimate continues to be below company guidance , giving
us comfort in our forecast .
? 5 . importantly , for 2002 rri ' s western generation assets are
currently less than 50 % hedged , which is well below the company ' s peers
including cpn ( strong buy , $ 19 . 75 ) and mir ( buy , $ 19 . 60 ) . as such , the
company is relatively more exposed to commodity price volatility in that
region of the country .
6 . we are reducing our target price to $ 30 from $ 40 . we derive this
valuation from our discounted cash flow ( dcf ) analysis , which employs an
11 . 4 % discount rate . our revised target price reflects : 1 . the $ 2 . 9 billion
acquisition expenditure ; 2 . the $ 1 . 8 billion of assumed net debt ; 3 . the
incremental earnings and synergies associated with the deal ; and , 4 . the
earnings shortfall at rri ' s western operations and slower overall growth
prospects for the business .
regards ,
neil stein 212 / 325 - 4217
this message is for the named person ' s use only . it may contain
confidential , proprietary or legally privileged information . no
confidentiality or privilege is waived or lost by any mistransmission .
if you receive this message in error , please immediately delete it and all
copies of it from your system , destroy any hard copies of it and notify the
sender . you must not , directly or indirectly , use , disclose , distribute ,
print , or copy any part of this message if you are not the intended
recipient . credit suisse group and each of its subsidiaries each reserve
the right to monitor all e - mail communications through its networks . any
views expressed in this message are those of the individual sender , except
where the message states otherwise and the sender is authorised to state
them to be the views of any such entity .
unless otherwise stated , any pricing information given in this message is
indicative only , is subject to change and does not constitute an offer to
deal at any price quoted .
any reference to the terms of executed transactions should be treated as
preliminary only and subject to our formal written confirmation .
fw : analysis of orion power acquisition ; maintaining belowconse
nsus estimates ; reducing target price
- - - - - original message - - - - -
from : stein , neil [ mailto : neil . stein @ csfb . com ]
sent : friday , september 28 , 2001 7 : 02 am
to : undisclosed - recipients
subject : rri : analysis of orion power acquisition ; maintaining
belowconse nsus estimates ; reducing target price
>
good morning ,
attached , please find our fc note on reliant resources .
summary :
1 . on september 27 , 2001 , rri announced it would acquire orion power
for $ 26 . 80 in an all - cash transaction .
? 2 . in our view this deal has very positive implications for
the sector . the purchase price is essentially in - line with our estimate of
the private market value of orn ' s asset portfolio ( $ 26 . 83 ) . overall , the
deal gives us addition confidence in our valuation framework and reinforces
our view that valuations in the sector are extremely attractive .
? 3 . rri is leaving unchanged its 2002 eps guidance of
$ 2 . 05 - $ 2 . 15 . in doing so , rri noted that the earnings contribution from
this deal ( + $ 0 . 30 ) will offset the negative impact of sluggish conditions in
the western power markets .
? 4 . our 2001 and 2002 eps estimates remain unchanged at $ 1 . 62
and $ 1 . 95 . our 2002 estimate continues to be below company guidance , giving
us comfort in our forecast .
? 5 . importantly , for 2002 rri ' s western generation assets are
currently less than 50 % hedged , which is well below the company ' s peers
including cpn ( strong buy , $ 19 . 75 ) and mir ( buy , $ 19 . 60 ) . as such , the
company is relatively more exposed to commodity price volatility in that
region of the country .
6 . we are reducing our target price to $ 30 from $ 40 . we derive this
valuation from our discounted cash flow ( dcf ) analysis , which employs an
11 . 4 % discount rate . our revised target price reflects : 1 . the $ 2 . 9 billion
acquisition expenditure ; 2 . the $ 1 . 8 billion of assumed net debt ; 3 . the
incremental earnings and synergies associated with the deal ; and , 4 . the
earnings shortfall at rri ' s western operations and slower overall growth
prospects for the business .
regards ,
neil stein 212 / 325 - 4217
this message is for the named person ' s use only . it may contain
confidential , proprietary or legally privileged information . no
confidentiality or privilege is waived or lost by any mistransmission .
if you receive this message in error , please immediately delete it and all
copies of it from your system , destroy any hard copies of it and notify the
sender . you must not , directly or indirectly , use , disclose , distribute ,
print , or copy any part of this message if you are not the intended
recipient . credit suisse group and each of its subsidiaries each reserve
the right to monitor all e - mail communications through its networks . any
views expressed in this message are those of the individual sender , except
where the message states otherwise and the sender is authorised to state
them to be the views of any such entity .
unless otherwise stated , any pricing information given in this message is
indicative only , is subject to change and does not constitute an offer to
deal at any price quoted .
any reference to the terms of executed transactions should be treated as
preliminary only and subject to our formal written confirmation .