Spark Infrastructure Group (ASX: SKI) notes that the Australian Energy Regulator (AER) has released the 2018 rate of return instrument and final report on the review of the regulatory tax approach. The Instrument will apply to all future regulatory revenue determinations to be made by the AER for all regulated businesses over the next four years.
The company has a portfolio of energy sector assets. Currently, it has four regulated assets. These assets include a 49% interest in three electricity distribution companies, namely CitiPower and Powercor in Victoria, SA Power Networks in South Australia. It also has a 15.01% interest in New South Wales electricity transmission business TransGrid.
The investment proposition of the company includes several fundamental objectives of the company. The assets of the company support economic growth and future sustainability of Australia. The company adds long-term value to its shareholders. It focuses on long-term growth low risks and value creation. The company also seeks to offer long-term cash flow stability to its investors and DPS growth.
The company adheres to the below values and goals while conducting its business.
- It maintains fairness and honesty in its business.
- It maximizes the shareholder’s return.
- The company cares for the legitimate interests of the communities where it operates.
- Maintains a strong relationship with business partners.
The nature of the difference between the regulatory forecast of tax costs and actual tax payments is being investigated by the AER currently. AER will examine the drivers that are creating any tax difference. Once they investigate these drivers creating the differences, then they will consider whether any changes are required to their regulatory tax approach. They are also trying to find out whether an alternative regulatory treatment will better measure for the efficient tax costs. The AER also will consider how recently introduced, and imminent tax legislation changes will impact the differences between their assumed tax and what the businesses pay.
The AER does not aim to reduce the tax difference. However, they are extensively looking for any valid and enduring reasons for the difference in the regulatory forecast of tax costs and actual tax payments. In fact, the focus of the AER is on making decisions in relation to revenue proposals that are in the long-term interest of consumers as required under the NEO and NGO. The AER considers the immediate implications for consumers, but also the longer-term effects once businesses have responded to the incentives that regulation provides. They are identifying possible changes to the tax approach, which might help in reducing the tax difference. However, this is only where it helps ensure customers to pay efficient costs over a long-term period.
On the price-performance front, the company is currently trading at $2.30 with a current market capitalization of $3.82 billion. The company has a current PE multiple of 39.0x and a dividend yield of 6.88%. It has posted a negative YTD return of 8.84%.
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