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Re: Enterprising Investor post# 17

Saturday, 01/31/2015 3:34:39 PM

Saturday, January 31, 2015 3:34:39 PM

Post# of 79
Hunt family’s InfraREIT power line IPO jumps right out of the gate (1/30/15)

InfraREIT, the power line company launched by Dallas billionaire Ray L. Hunt’s energy and real estate conglomerate, quickly blew past market projections during its New York Stock Exchange debut Friday, closing at $26.60 a share.

The initial public offering was priced at $23 a share — itself a premium over estimates put out just this week, when the company was expected to raise $483 million. By the end of the day, InfraREIT’s market cap had reached $1.2 billion.

The IPO comes as InfraREIT sets out to expand its power line business across Texas, New Mexico and Arizona, states with growing populations where demand for wind and solar farms is expected to draw heavy investment in the years ahead.

“Regional renewable energy generation is expected to double in the next 10 years in Arizona and New Mexico to meet renewable portfolio standards, which we believe will provide transmission investment opportunities,” InfraREIT said in a securities filing this week.

More immediately, Hunt Consolidated is vying to buy Oncor, Texas’ largest power transmission company. Parent company Energy Future Holdings filed for bankruptcy in April and is putting Oncor up for auction, a sale that it expected to fetch upwards of $17 billion.

With 10 million customers and 119,000 miles of power lines, Oncor would offer a major upgrade to InfraREIT’s stables. Set up as a tax-friendly structure that owns but does not operate power lines, InfraREIT counts 11,000 miles of transmission and distribution lines across Texas.

But the Hunts face competition. Florida power giant NextEra Energy and the Houston utility CenterPoint Energy are also expected to bid. And Warren Buffett’s Berkshire Hathaway Energy has expressed interest.

“Oncor is a very attractive asset. You could see that asset getting bid up pretty high,” said Andrew Bischof, a utility analyst with the research firm Morningstar.

InfraREIT’s IPO, under the ticker symbol HIFR, marked an unusually public display for the Hunts, who have famously kept their oil company and larger Hunt Consolidated out of the stock market.

With oil drilling operations, ranching and real estate holdings around the globe, Hunt Consolidated dates to 1934, when patriarch H.L. Hunt was building his oil empire. Forbes lists it as among the 100 largest private companies in the United States, with estimated revenue of $4.5 billion.

“The Hunts have always played their cards close to the vest,” said Jerome Tuccille, who wrote about the family in his 1984 book Kingdom. “H.L. Hunt was adamant about keeping his companies private ... he didn’t like the idea of coming up with quarterly earnings reports to satisfy the SEC.”

Ahead of the IPO, InfraREIT had to open its books and disclose the details of its operations. It reported $42.4 million in profit on revenue of $72.3 million in 2013. Existing investors include Tokyo-based Marubeni Corp., John Hancock Life Insurance Co. in Boston, the Canadian pension fund OpTrust Infrastructure N.A. and the Teachers Insurance and Annuity Association of America.

Five years after its founding, InfraREIT is seeking to expand at a time when power line companies are becoming much sought after by investors.

New federal regulations targeting carbon dioxide emissions are expected to expand solar and wind development, requiring infrastructure buildout. And with government-regulated profits, transmission is viewed as a safe investment within the volatile energy sector.

“Our view is the hidden winners of the clean energy plan are the transmission companies,” analyst Bischof said. “You’re going to see a significant amount of new transmission coming online.”

"Someone said it takes 30 years to be an instant success" - Gabriel Barbier-Mueller, CEO of Harwood International

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