20/20 visibility

Regulated and safe. Based in Australia, SPN is a regulated natural monopoly which owns Victoria’s primary electricity transmission network, an electricity distribution network in eastern Victoria and a gas distribution network in western Victoria.

Excellent earnings visibility. SPN offers defensive qualities in the current riskaverse climate where investors are searching for revenue and earnings assurance. Following recent revenue and tariff regulatory resets in 1H08, almost 90% of its revenue has been locked in until 2011.

No refinancing issues until Sep 2010. Despite difficult credit-market conditions, SPN successfully refinanced A$320m of debt maturing in Nov 08 through a £250m 10-year bond to raise A$535m. It has also secured a A$1.55bn bank facility in Feb 08, demonstrating its ability to access competitively priced debt. It has an A1 credit rating from Moody’s and an A- credit rating from Standard & Poor’s.

Initiate with Outperform. We like SPN’s high earnings visibility and predictability as well as its attractive yields per stapled security. Our DCF computation (WACC 10%, terminal growth 3%) values SPN at A$1.34 or S$1.59, which offers potential upside of over 30%, supported by distribution yields of over 11%.

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