Foresight Group Flashcards
Why foresight group and this role?
Foresight Group’s reputation as an industry leader in renewable energy and energy transition investing, is a huge draw. Being part of a highly regarded firm and team means you will be learning from the best, working with other talented people and people lead by great leaders, access to best in class training and resources and as someone in the developmental stage in my career this is extremely important.
I like that it would involve working in a sector that is pivotal in shaping the future of our planet and offers the chance to make a tangible difference in relation to climate change and in promoting sustainable development which I think would be highly rewarding.
I am drawn to the diverse and innovative investment portfolio at Foresight Group, within the infrastructure portfolio there’s renewable energy, waste management, water and wastewater treatment, energy storage, forestry amongst others and I believe that this variety will provide a dynamic and stimulating work environment where I can continuously learn and grow.
Also has with foresight group having operations and investments spanning across various regions globally, this offers opportunities to work on international projects, providing a broader perspective and experience in global markets, which has someone coming from a very small country in New Zealand is most what I’m searching for in moving to the UK.
What is covered under the infrastructure team
- Renewable Energy Projects:
o Solar Power: Ownership and operation of solar farms that generate electricity from solar panels.
o Wind Power: Investment in both onshore and offshore wind farms that harness wind energy to produce electricity.
o Hydropower: Investments in small-scale hydroelectric projects that convert flowing water into renewable energy. - Energy from Waste:
o Anaerobic Digestion Plants: Facilities that process organic waste to produce biogas, which can be used for electricity generation or as a renewable vehicle fuel.
o Waste-to-Energy Plants: Plants that convert various forms of waste into electricity or heat through combustion or other processes. - Biomass Energy:
o Biomass Power Plants: Facilities that produce energy through the combustion of organic materials such as wood pellets and agricultural residues. - Waste Management and Recycling Facilities:
o Recycling Plants: Facilities aimed at processing and recovering valuable materials from waste, contributing to the circular economy.
o Landfill Gas to Energy Projects: Projects that capture methane gas emitted from landfills and use it to produce electricity. - Water and Wastewater Treatment:
o Treatment Plants: Facilities designed to treat and manage water and wastewater, ensuring clean water supply and environmental protection. - Energy Efficiency Projects:
o District Heating Systems: Networks that provide heating to multiple buildings from a centralised source, improving energy efficiency.
o Energy Storage Systems: Investments in battery and other energy storage technologies that help balance supply and demand in the energy g - Supporting infrastructure for renewable energy assets: e.g MaresConnect a proposed 750MW electricity interconnector linking the power markets of Ireland and Great Britain. The cable route is approximately 245km in length and will run underground and under the sea between Dublin in Ireland and Bodelwyddan, Denbighshire in Wales
Key recent transactions and events:
Transactions: - FEIP 1 made a 267 MW solar portfolio investment in Greece.
- Foreseight Environmental Infrastructure sold 51% of a portfolio of anaerobic digestion assets for 68.1m. Turning waste into Biogas.
- FEIP invested into Silvermines a Pumped storage Hydro project in Ireland in FY24
Other recent information: Foresight Environmental Infrastructure Limited announced the write down of its investment in HH2E AG (“HH2E”), which targeted the development of several green hydrogen production sites across Germany due to a lack of third party funding.
Compare different valuation methodologies?
- Trading Multiples (Comparable Companies Analysis):
What it is: Valuation based on market multiples of similar publicly traded companies (e.g., EV/EBITDA, P/E).
Pros: Quick, market-based, and easy to apply.
Cons: May be influenced by market distortions, lacks company-specific insights. - Transaction Multiples (Precedent Transaction Analysis):
What it is: Valuation based on multiples from past M&A transactions of similar companies.
Pros: Reflects actual deal prices and strategic premiums.
Cons: Limited by historical data, may not reflect current market conditions. - Discounted Cash Flow (DCF):
What it is: Values a company based on its projected future cash flows, discounted to the present using a required rate of return.
Pros: Focuses on intrinsic value and long-term cash generation.
Cons: Sensitive to assumptions about future performance and difficult to estimate accurately.
Key differences and when to use each?
Trading Multiples: Best for a quick, market-based valuation of a company or for companies with public peers in similar industries.
Transaction Multiples: Ideal when assessing the value of a company in the context of potential M&A transactions, especially if there are premium considerations or synergies., as trading multiples do not reflect these
DCF: Most useful for understanding the intrinsic value of a company based on its own
Trading and transaction multiples are market-based and easier to apply but don’t capture long-term potential.
DCF provides a deeper, intrinsic valuation but requires accurate future forecasts and is sensitive to assumptions.
Key financial metrics in renewable energy valuations and what is LCOE?
Discounted Cash Flow (DCF), Internal Rate of Return (IRR), Net Present Value (NPV), Levelized Cost of Energy (LCOE), Debt Service Coverage Ratio (DSCR), and Payback Period.
What is LCOE (levelized lost of energy?)
LCOE is calculated by dividing the total costs of a project (including upfront costs, operating costs, and maintenance) by the total amount of electricity generated over the project’s lifetime.
LCOE is calculated by dividing the total costs of a project (including upfront costs, operating costs, and maintenance) by the total amount of electricity generated over the project’s lifetime
What are the primary risks you consider when valuing a renewable energy project, and how do you quantify them?
- Expected answer: Risks include regulatory risk, technology risk, market risk (energy price volatility), financing risk, operational risk, and weather/energy production risk. These risks can be quantified through sensitivity analysis or adjusting discount rates to reflect risk premiums.
How do you account for the variability in energy production when valuing a renewable energy asset?
- Expected answer: You would consider the capacity factor (which measures the actual output versus the theoretical maximum) and incorporate energy production forecasts based on historical data, weather patterns, and regulatory factors.
What are the key government incentives and policies that impact value?
What is the relationship between levered and unlevered IRR with regard to a DCF
Free Cash Flow to the Firm (FCFF)
Definition: FCFF is the cash flow generated by the operations of a company before accounting for interest payments (debt) and includes capital expenditures and working capital changes. It represents the cash flow available to all investors (both equity and debt holders).
Use for Unlevered IRR: Unlevered IRR uses FCFF because it measures the return on the total capital invested in the project without considering the financing structure. It reflects the project’s performance purely based on operating cash flows.
Free Cash Flow to Equity (FCFE)
Definition: FCFE is the cash flow available to equity shareholders after accounting for debt servicing (interest and principal payments) and any changes in the firm’s net borrowing. It represents the cash flow that can be distributed to the equity holders.
Use for Levered IRR: Levered IRR uses FCFE because it measures the return on the equity portion of the investment, reflecting the impact of leverage. It considers how debt financing affects the cash flows available to equity investors.
What are the challenges of using IRR
- Multiple IRRs: Projects with unconventional cash flows (i.e., alternating between positive and negative) can have multiple IRRs, making it confusing and difficult to determine a clear decision.
- Assumes Reinvestment at IRR: IRR assumes that intermediate cash flows are reinvested at the same rate as the IRR, which might not be realistic. Other methods like the Modified Internal Rate of Return (MIRR) address this issue by assuming reinvestment at the project’s cost of capital.
- Doesn’t Account for Project Size: IRR does not consider the scale of the project. A smaller project with a higher IRR might be chosen over a larger project with a slightly lower IRR despite the latter potentially creating more overall value.
- Timing of Cash Flows: IRR is insensitive to the timing of cash flows. Two projects with identical IRRs but different timing of cash flows can have very different risk profiles.
- Assumes a Single Time Period: IRR is best suited for evaluating the performance of investments over a single time period. For investments with multiple phases or different investment horizons, using IRR can be misleading.
- Comparing Projects with Different Durations: When comparing projects of different durations, IRR can lead to incorrect conclusions. The measure does not easily account for varying project lifetimes, which could affect the comparability of the investments.
- Neglects Scale of Returns: IRR focuses on the percentage rate of return rather than the absolute dollar amount of returns. This might lead to selecting a project with a higher percentage return but smaller overall profit.
Why are you looking for a new role, and why specifically are you looking to this business?
Mainly I am looking for a lifestyle switch, I am keen to move away from NZ see what the world has to offer do some more travelling, new scenery, I have been in NZ my whole life so just need something new.
From a work perspective though, whilst I like that at KPMG in NZ we’re very diverse, sector agnostic, I get to work on lots of different types of engagements, but I also find that you never get to be really good at something and thats what I am looking for in my next role is somewhere I can develop some real expertise in an area. Foresight obviously, offers that with its key investment themes but also has enough variety so as not to get bored, and is an area that I also have some experience in.
Key relevant modelling experience?
Project jade - M&A model build, NZRC - valuation model build DCF, trading and transaction comps, NZFL - lessor interest DCF models for various plots of land including forestry and carbon price path modelling, recent valuation review of Ranui solar projects - DCF and assumptions check (LRMC energy, energy mix, Orio Group secondment - Carbon model build
Company and infra key financials:
Infra key financials: 295 UK assets, 97 EU assets, 45 AUS assets, 10.1b AUM, 44.7m revenue, 16.9m EBITDA
Walk through a DCF
1.Forecast the free cashflows, EBIT(1-T) + D&A - Capex - NWC change. 2. Estimate the terminal value using either an exit multiple or a TGR. 3. Determine an appropriate WACC and discount the FCFs. Sum FCF to calculate EV ( if using FCFF) then for equity value subtract net debt.
Questions for them?
- Do you guys provide any transactional support?
- “analysis to support asset level optimisations” what would this involve?
- Fund modelling - is this modelling the funds cashflows like distributions, capital calls, using FX hedging or is like just a collection of different assets?
- Is there a lot of project finance modelling?
- What is the team structure and culture?
- There a lot of different assets, how are these divided up among the team?
- For the valuations, is it like quarterly vals are just more updates of key inputs, WACC inputs etc and yearly there is a more thorough review of forecasts and other relevant research.
Explain the different contract types for electricity?
How would you build a model for a solar farm?
- Project assumptions
2.Revenue assumptions - Capex
- Opex
- Financing assumptions
- CF forecasts
- Sensitivity / scenario
- DCF valuation
What are the cheapest and most expensive sources of energy and why?
Compare a project finance model to standard DCF in terms of structure, cashflows, Debt treatment and usage, WACC, valuation focus
