Warren Buffett's Next Target?

Is Warren Buffett Hungry for International Power?

Warren Buffett has been busy buying stocks ! Over the last quarter Berkshire Hathaway bought a nearly $60m stake in ExxonMobil, increased its stock holding in Nestle, reduced its holdings in ConocoPhillips and Moody's and nearly doubled its holding in Wal-Mart.

It also spent around $20 billion on a train set. But there are rumors in the UK that Warren Buffett is now in the market for something to power the train set - a utility company called International Power (IPR). Mr Buffett has stated more than once that he thinks the bottom is in in the markets and that this is a good time to pick up some stocks on the cheap. International Power has certainly fallen a long way off its top back in 2007.

International Power 10 year Chart with 200 day M.A.


International Power 1 Year Chart with 200 day M.A.


According to the Daily Mail newspaper in the UK, Warren Buffett is eyeing up the electricity generator, a rumor which caused the stock price to rise 3.2p to 269.4p.

International Power has interests in more than 40 power stations in over 20 countries. It recently banked around $500 million in profit after it sold its Czech business to investment firm J&T Group. Broker Cazenove has upgraded IPR to outperform from neutral with a fair value estimate at 390p, after a positive interim management statement.

What does International Power do which would explain why Warren Buffett may be interested in it?

Well, the company is a leading independent electricity generating company with interests in over 32,000 MW (gross) of power generating capacity in 21 countries.

They use their capabilities "to successfully and profitably develop closely-linked businesses" which include:

• desalination of seawater to ensure the wholesale production of fresh water
• steam production and distribution
• district heating using cogeneration
• a small but expanding electricity retail business
• gas transportation
• open-cast coal mining
• renewable energy

One interesting point made by Neil Veitch of the Scotsman newspaper is that "As a growth business operating in a capital intensive industry, IPR requires continued access to capital to sustain its business model. Whilst the cost of financing has increased, the company has no major refinancing requirements until 2010 and is highly cash generative in the absence of further capacity additions. Currently trading on an estimated 2009 PE of 6.5x and with a dividend yield of over 5 per cent, we consider IPR to be undervalued."

So is Warren Buffett interested in International Power? Well it certainly would seem to be a plausible theory given his interest in long-term stock holdings and his views on where the economy is heading, but time alone will tell. Unless you have some information you would like to share in the comments !
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