Investor Soiree Butler Greenko Group GKO.L

Take me straight down to the chat Greenko Group is trading above the moving 50 day average and below the moving 200 day average on below-average volume.
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  • analysis of Prefs Conversion at 56p by thirty fifty twenty
    Tue, 30 Jun 2015 15:03:00 GMT

    A very interesting situation developing....

    the starting point of my analysis is the assumption that operationally there are no issues...
    this is a possibility and thus ultimately there is an element of risk with GKO.
    That being said - there have been no operational issues mentioned in any newspaper reports,
    or by rampers and interested parties on other BB sites.

    My starting point is thus currently £600m of debt, £210m of convertible preference debt
    and £139m of EBITDA for FY 2016.

    With such high financial, as well as operational leverage the value of "equity" could thus turn out to be low (though I failed to realise this as I held through the price collapse!). In addition, as the Conv Pref has rights starting on 1 July 15, that value could be HUGELY diluted for current shareholders - so seeing conversion at 40p was not / and still is not unforeseeable. And there is nothing that can be done despite GKO operational success.

    However what sometimes the market forgets in its selling panic and despair is that companies can react and make decisions which improve their situation.

    I calculated in this scenario that a conversion price of 50p vs a conversion price of 40p, meant that current shareholders had £10m less dilution post conversion. In theory that meant that current shareholders could spend £9m buying shares to increase the price (in the 5 days prior to 1 July) thus reducing their dilution. Not totally likely but the logic did mean that buyers might be tempted to wade in. This appears to have happened with the huge volume noticed over several days at 45p.

    Secondly the B of D might try and persuade the Conf Pref holders not to railroad all other shareholders at the lowest point but to do a deal.... GKO has spent £1bn building 1.5GW of renewable, but its target is to get to 5GW by 2020 so there is still a big GW cake to go around and it doesn't make sense to exclude one-self from the financing table of renewables in India 9of which GKO is the 3rd biggest player). This is now confirmed as GKO RNS says it is in negotiations with Conf Pref holders. In Negotiations presumably means that the price would be higher than the market panic bottom of 42p - thus the current price strength of 60p.

    However the 'no brainer' aspect for me was using adversity to one's advantage.

    WHATEVER the conversion price, the 'rating' of the equity afterwards would be higher for 2 reasons. 1 - uncertainty would have been removed; 2 - the financial gearing would be significantly reduced.
    And all of this increase in EV would flow through into the value of the equity.

    My (conservative) assumption is a 10% increase from the lowest rating reached:
    Thus a conversion at 40p - the equity would be worth 55p
    And a conversion at 60p - the equity would be worth 75p

    So at 55p, I see little downside, even if there is a conversion at 45p.
    And of course there is HUGE scope for the rating to recover further since GKO has delivered growth in a continuing growth market.

    The conversion price is set by the average price on the 5 days prior.. so it is no surprise that the buying volume came 7 working days ago. Even if the Conf pref holders pull the trigger against the company's wishes the conversion price would be an average of 60p. Todays' strength is the last day of the 5 days before 1 July so I expect a strong finish to the price.

    And now the gearing works to our advantage as people see that 42-45p is a double bottom, volume confirmed base, they will work out that the lowest conversion price is maybe 55p which automatically makes the equity worth closer to 70p, thus encouraging buyers and so the cycle continues

    I'd be amazed if we see a conversion at 100p or even 80p as talked about by Simon Thompson but there still is more upside, purely from the mathematics of it, as investors work out the implications.

    With regards overall ratings -
    GKO EV (Economic Value) is currently 6 times EBITDA
    MYT EV is at 6.8 times
    OPG By thirty fifty twenty
  • Re: IC update by r21442
    Thu, 25 Jun 2015 11:16:00 GMT

    Full text.

    It would appear that the board of Greenko (GKO: 55p), the Indian developer, owner and operator of clean energy projects, have been listening to their shareholders. They have now entered into discussions with two major investors to work out a compromise deal to prevent a highly dilutive share issue on the conversion (into ordinary shares) of the minority interests in Greenko Mauritius held by the Government of Singapore (GIC) (whose investment has a value of £140m), and Global Environment Emerging Markets (investment has a value of £75m).

    This is clearly good news as both GIC and Global Environment Emerging Markets (GEF) have the right to convert their investments (GIC owns 17.38 per cent of Greenko Mauritius and GEF owns 14.09 per cent) into Greenko’s ordinary shares from the start of July, so this issue needs resolving as soon as possible. I discussed this important point when I last updated my view when the price was bombed out at 44p (‘Catalysts for share price moves’, 4 Jun 2015). The latest news initially sparked a 50 per cent plus rally in Greenko’s share price to a high of 68p yesterday morning, albeit it only returned the price back to the 70p price level they were trading at seven weeks ago (‘Break-out looms for mobile wonder’, 12 May 2015) before some profit taking set in yesterday afternoon.

    My advice is to hold firm and await news on details of the compromise deal the company is trying to work out with these two major investors as there could be more significant share price upside in the event of an amicable resolution. That's because after factoring in a December 2015 year-end net debt figure of around $920m (£590m), an increased issued share capital of 329m shares - assuming that GEF and GIC accept conversion terms around 100p a share as I discussed in my article in May - then Greenko's enterprise value of $1.5bn (based on a share price of 100p) would still be only 8.5 times fiscal 2016 operating profit estimates and 7 times likely cash profits.

    Of course a conversion price of 100p a share is well above Greenko’s current share price, but still represents a chunky discount on the 180p level the shares were priced at last summer, and more importantly the share price at the time when they made their investments in the first place. Moreover, there is no point at all for the two major shareholders to undermine the ability of Greenko's board to progress with its expansion plans as GIC and GEF are still only minority shareholders in Greenko Mauritius, owning less than a third of that subsidiary between them. Hold.
    By r21442
  • IC update by TopTrader2009
    Thu, 25 Jun 2015 11:14:00 GMT

    ST has an article out today this is his concluding bit:-

    My advice is to hold firm and await news on details of the compromise deal the company is trying to work out with these two major investors as there could be more significant share price upside in the event of an amicable resolution. That's because after factoring in a December 2015 year-end net debt figure of around $920m (£590m), an increased issued share capital of 329m shares - assuming that GEF and GIC accept conversion terms around 100p a share as I discussed in my article in May - then Greenko's enterprise value of $1.5bn (based on a share price of 100p) would still be only 8.5 times fiscal 2016 operating profit estimates and 7 times likely cash profits.

    Of course a conversion price of 100p a share is well above Greenko’s current share price, but still represents a chunky discount on the 180p level the shares were priced at last summer, and more importantly the share price at the time when they made their investments in the first place. Moreover, there is no point at all for the two major shareholders to undermine the ability of Greenko's board to progress with its expansion plans as GIC and GEF are still only minority shareholders in Greenko Mauritius, owning less than a third of that subsidiary between them. Hold. By TopTrader2009
  • 1st July by farmerdave
    Wed, 24 Jun 2015 09:17:00 GMT

    Interesting background shennanigans. I am not invested but have been watching for a while.
    There is a lot of convertible debt due 1 July at subsidiary levels and the NAV of the company at market levels (for Indian wind power/hydro etc) is -ve but company producing cash etc.

    Will continue watching but at these levels will not buy

    FD By farmerdave
  • Re: News by Divmad
    Fri, 19 Jun 2015 12:17:00 GMT

    I guess not! By Divmad
  • News by SPURRRR
    Wed, 17 Jun 2015 10:02:00 GMT

    Are we expecting quarterly results today ? By SPURRRR
  • Price Targets 100% upside by TopTrader2009
    Thu, 04 Jun 2015 14:38:00 GMT

    Investec currently have a BUY rec on Greenko and £1.50 target

    Cantor currently have a BUY rec 82p price target.

    Minimum 100% upside from these levels. By TopTrader2009
  • Another IC update by r21442
    Thu, 04 Jun 2015 11:25:00 GMT

    I published a detailed analysis of the issues facing Greenko (GKO: 44p), the Indian developer, owner and operator of clean energy projects, only three weeks ago but given the share price slide since then another update is warranted.

    To recap, I initiated coverage on the shares when they were 138p ('Buy signal flashing green', 18 March 2013), the price subsequently hit a high of 190p and I then downgraded my advice to hold at 104p post the fiscal 2014 results announcement ('Small cap updates', 31 March 2015).

    There has been no corporate newsflow since my last article (‘Break-out looms for mobile wonder’, 12 May 2015), but clearly some investors have bailed out, hence the share price drop from 70p to 44p in the past three weeks. This has resulted in Greenko now being valued at £68m, or almost £100m less than its equity shareholder funds, and reflects the potential for a dilutive share issue on the conversion (into ordinary shares) of the minority interests in Greenko Mauritius held by the Government of Singapore (GIC) (whose investment has a value of £140m), and Global Environment Emerging Markets (investment has a value of £75m).

    I raised this specific issue in both my March and May articles, noting that GIC has the right to exchange its 17.38 per cent interest in Greenko Mauritius into Greenko ordinary shares anytime between 1 July 2015 and 30 June 2017. True, the number of shares that can be issued to GIC is capped to prevent it from owning more than 29.9 per cent of Greenko's enlarged ordinary share capital. But with Greenko’s share price now so depressed, then if GIC takes up its conversion rights next month then it will not only be issued with a chunk of new equity in Greenko, but will also end up owning a minority interest in Greenko Mauritius as well. The same applies to Global Environment Emerging Markets (GEF) which has the right to exchange its 14.09 per cent interest in Greenko Mauritius into Greenko ordinary shares anytime between 1 July 2015 and 30 June 2017.

    Clearly, there needs to be discussions between GIC and GEF and the board of Greenko to resolve the conversion issue as a matter of urgency. It would be negligent for the board of directors not to protect the interests of their own shareholders. Furthermore, it makes sense for all parties to come to some sort of compromise agreement as soon as possible, and preferably before the first exercise date on 1 July 2015, in order to reverse the steep fall in Greenko’s share price which has so undermined investor confidence even though the business has been making strong progress operationally.

    From a technical perspective, I would point out that Greenko’s share price is as oversold as it ever has been: the monthly RSI is below the level at the March 2009 bear market low, and the weekly and daily readings are in extreme oversold territory. At the intraday low of 40p yesterday, the price was also close to testing the support level at those March 2009 lows. From my lens at least, this technical set up is such that any positive news regarding a resolution to the conversion issue should lead to a very sharp bounce in Greenko’s share price given the massively oversold technical conditions. In the circumstances, my advice is to hold on.
    By r21442
  • Back to 2009 by phonic
    Wed, 03 Jun 2015 10:10:00 GMT

    Jeez... By phonic
  • Re: Article in today's IC by farmerdave
    Thu, 14 May 2015 11:06:00 GMT

    r thanks for posting that. I agree the dilution is a problem but a big issue is if you add up their assets - 1,200 MW operating and value it at market you get 720m USD (at 0.6m a mw - a lot of hydro and wind in india is trading at less) which exceeds its debt pile with or without dilution.
    At present the share can only be an option on the recovery of renewable assets in India.
    I also have a few problems with the accounts
    The MI interest shown in the notes do not add up to the balance sheet
    Cash interest of 56m is not reconciled to the P&L - I presume they are capitalising some
    56m interest is equal to their op cash flow !

    If they held their assets at the lower of cost or market value the write down would take the co into -ve equity with the pref share holders at Greenko Mauritius and Greenko Wind ending up with most assets

    I do not know enough of the terms of their debt etc to know how this will pan out but worrying times

    FYI I am not a holder but am sitting watching
    FD By farmerdave
  • Article in today's IC by r21442
    Tue, 12 May 2015 11:57:00 GMT

    Shares in Aim-traded shares in Greenko (GKO:70p), the Indian developer, owner and operator of clean energy projects, have endured a roller coaster ride since I initiated coverage at 138p ('Buy signal flashing green', 18 March 2013).

    Having hit a high of 180p at the end of September 2014, Greenko's share price fell steadily thereafter and I subsequently downgraded my view to hold when the price was 104p after it became apparent that the operational progress the company has been delivering is being undermined by its capital structure ('Small cap updates', 31 March 2015). Clearly, some investors headed for the exit as Greenko's share price declined a further 20 per cent to 82.5p by the time analysts at brokerage Investec released a note in mid-April with a 150p revised target price.

    In that note to clients, Investec's utilities analyst Harold Hutchinson noted: "We believe the recent share sell off reflects some shareholders' concern on Greenko's financing structure. This has been magnified by the potential conversion of the Government of Singapore (GIC) (which invested £100m in Greenko Mauritius in 2013) and Global Environment Emerging Markets (invested in 2009) minorities into ordinary shares in the near future. The original GIC investment at a subsidiary level offered re-assurance to ordinary shareholders in terms of capital commitment. The need now is for Greenko's capital structure to be simplified and organised to ensure a recovery in confidence of all shareholders."



    Calculating the level of potential dilution

    The issue of dilution to existing shareholders is the one I raised in my article at the end of March. That's because GIC has the right to exchange its 17.38 per cent interest in Greenko Mauritius into a minimum of 44.8m Greenko ordinary shares anytime between 1 July 2015 and 30 June 2017. However, the number of new ordinary shares to be issued is capped to prevent GIC from owning more than 29.9 per cent of Greenko's enlarged ordinary share capital. Greenko currently has 155.8m shares in issue.

    So with Greenko's share price significantly lower than at the time when GIC made its original investment, then GIC could end up owning a minority interest in Greenko Mauritius as well as being issued with a slug of new equity in Greenko. Global Environment Emerging Markets (GEF) has the right to exchange its 14.09 per cent interest in Greenko Mauritius into a minimum of 29.1m Greenko ordinary shares anytime between 1 July 2015 and 30 June 2017.

    To put the interests of both GIC and GEF into some perspective, Investec calculate that GEF's interest in Greenko Mauritius would convert into 75m new Greenko shares based on its present value of $113m (£75m) and using a share price on conversion of 100p; and 70 per cent of the GIC interest would be satisfied by the issue of 99m new Greenko shares based on a present value of its investment of $210m (£140m). But because of the 29.9 per cent shareholder cap, GIC would also retain an interest in Greenko Mauritius worth £40m. As a result, Investec have factored in a raised share count of 329m, up from 156m currently, assuming conversion occurs on 1 January 2016 and a share price of 100p being accepted by both GIC and GEF. This is significantly higher than Greenko's current share price.

    It's possible that both GIC and GEF would accept conversion of their minority interests under these terms as it would enable Greenko to simplify its balance sheet and funding structure, remove the issue of dilution that is undermining sentiment, and enable investors to focus on the strong operational progress the company is actually making. Greenko's operating profit is expected to more than double from $55.6m in the 2014 fiscal year (nine month period due to change of year-end), to $121m in 2015, and $174m in 2016, according to analysts at both brokerage Arden and Investec.



    An issue that needs addressing

    The issue of GIC's and GEF's minority interests needs sorting out By r21442
  • Re: nosedive by phonic
    Tue, 12 May 2015 09:17:00 GMT

    Exchange Rate? By phonic
  • nosedive by Furnace100
    Mon, 11 May 2015 11:16:00 GMT

    Something is not right here, I contacted GKO about 10 days ago and they indicated that all is well and that they are still on target for 1000 MW this year. Can anyone shed any light in what is happening to the share price? By Furnace100
  • Any ideas why the constant drop? by the last night trader
    Thu, 07 May 2015 16:23:00 GMT

    In theory these are growth shares in a growth market, hit all their targets etc

    any ideas why they are bombing?? By the last night trader
  • Re: Latest IC comment by The Preston Plumber
    Fri, 01 May 2015 09:05:00 GMT

    When is the share price going to stop falling over a cliff? By The Preston Plumber
  • RE: why falling? by ghostwriter
    Tue, 07 Jul 2015 13:22:08 GMT

    chart / price action looking ripe for another leg up.
  • RE: why falling? by ghostwriter
    Tue, 07 Jul 2015 11:35:28 GMT

    Must be some more detail on the "deal" very soon.
  • RE: why falling? by 4family
    Fri, 03 Jul 2015 21:36:49 GMT

    It can't go up in a straight line forever. The uncertainties/ silence are being addressed. I doubt we will see sub 60, let alone below 50 for a considerable time (f ever), I added a little at 65p today.
  • RE: 6% dip by ghostwriter
    Fri, 03 Jul 2015 18:41:47 GMT

    Bounced off what appears to be a short term resistance level around 70. Assuming it holds the 60s early next week, every chance we'll see another attempt at breaking through 70 before the week's out. After that there's some good upside potential towards £1+ in my opinion.
  • 6% dip by martinello11
    Fri, 03 Jul 2015 15:58:45 GMT

    Is it gonna keep falling on Monday again? It's supposed to be rising.
  • why falling? by martinello11
    Fri, 03 Jul 2015 12:35:12 GMT

    Could someone tell me why are these shares falling? Is it because every time I press the buy button the shares start falling? I hope it's not coming back to 41p.
  • RE: Good day by Hounddog10
    Thu, 02 Jul 2015 18:18:02 GMT

    Yes I did a bit of buying today. I am increasingly of the view that the dilution issue has become overblown. The convertible holders are faced with quite a number of practical difficulties in realising their position. It is interesting that GEF has not yet exercised - from GKO's latest investor presentation it is clear its investment has now stopped compounding (although that was not absolutely clear from the GEC circular which also dealt with GEF amended terms). GEF was on prevailing price (not sure if that got changed) and GEC is more sensibly on 5 day volume weighted average which is c65-70p now. Another problem for the converters is I think that GKO does not have enough authorised share capital for super dilution. It has only 300m authorised share capital leaving c150m for dilution. If the convertibles needed more the shareholders would have to vote through an increase which would slow the process of getting the share and selling them.
  • RE: Good day by Olderandwiser
    Thu, 02 Jul 2015 15:59:37 GMT

    Yep, have to agree with you ghost. Looking good in a low-key sort of way for a move towards £1 on any resolution of the CB issue.
  • RE: Good day by ghostwriter
    Thu, 02 Jul 2015 15:38:38 GMT

    Steady, low-key buying taking place this afternoon. Looking good.
  • RE: Good day by ghostwriter
    Wed, 01 Jul 2015 12:37:04 GMT

    Creeping up towards 70p again. If and when that breaks then there's some good upside potential.
  • RE: Good day by Olderandwiser
    Wed, 01 Jul 2015 11:00:37 GMT

    What got me involved here was the pattern of volume build up in the 40s at the recent low, prior to the last advance. Someone knew back then that something is brewing in the background.
  • RE: Holding up remarkably well... by Olderandwiser
    Wed, 01 Jul 2015 10:58:41 GMT

    Yes I agree Bigprofit. It was a tongue in cheek remark of mine earlier. All this stuff about a Greek bank run and leaving the euro is more or less fully in the price by now, given all the media hype from the BBC et al who love to revel in other peoples' disasters. Once this storm dies down, as it surely will, Mr Market will return to appreciate that equities in general are still attractively priced, even with an interest rate hike or two in the US.
  • RE: Good day by Bigprofit
    Wed, 01 Jul 2015 10:49:55 GMT

    I am contemplating averaging down, but the main problem is, until recently, this share is just iliquid. I always believe no true price without volume. IC was so confident about this share as were many others, but now I am nursing large losses, but I think a rapid recovery is on the cards and an update from Investec would help.
  • RE: Holding up remarkably well... by Bigprofit
    Wed, 01 Jul 2015 10:26:45 GMT

    Surely the current market is just the usual 'sell in May and go away', I do not see a doom catalyst yet.
  • RE: Holding up remarkably well... by Olderandwiser
    Wed, 01 Jul 2015 08:53:45 GMT

    A maelstrom!