Clipper said that its major shareholders had agreed to buy 4.7m new shares at Thursday's closing price of 537.5p apiece. The California-based, AIM-listed company also announced a new $60m line of bank credit, to be funded by a customer, and an early payment of $85 million from another customer.
That comes after Clipper suffered a series of production problems throughout 2007, resulting in a January profit warning as the group failed to match growing demand.
While the group remained cash generative, payment delays were estimated to have reduced free working capital to between $25-$45m, against a monthly requirement of as much as $50m. The cash injection should give it around three months of flexibility to get production on track.
The fundraising will also cover additional penalty charges of $8-10m, which was on top of $33m already announced. The remediation cost will cover delays to the repair of broken blades in installed equipment, which management blamed on weather conditions.
Analysts at Lehman Brothers noted that it was the fifth time Clipper had warned about 'non-recurring' charges.
"While we accept the company is acting to reduce future warranty costs, the impact on the market perception on their ability to generate industry average, or above industry margins, is beginning to take its toll. We believe that the reputation of the company to generate cash flow and earnings will be crucial in removing the significant discount the market places towards achieving sustainable earnings," the broker told clients.
Lehman - house broker to Clipper - increased its estimates for non-recurring charges this year and next, to $25m and $30m respectively, although it saw potential upside once teething problems are resolved.
The charge adjustment led Lehman to forecast a 6 cent loss per share this year, from a 17 cent profit previously. For 2009, it cut EPS to $1.17 from $1.50.
But Lehman it repeated an "overweight" rating on with a target price of 1200p.
"The private placing at the closing market price we believe will be viewed positively as, together with significant prepayments from customers, we believe this eases the near term balance sheet issues facing the company," analysts Rupesh Madlani and Arindam Basu wrote.
On current trading, Clipper showed progress but was not yet out of the woods. Production totalled 73 drivetrains in the year to date, leading management to reiterate a full-year target of 311 turbines.
"Given the number of drive-trains required for remediation, the production of 'new' turbines seems low," commented Jason Channell, an analyst at Goldman Sachs."
Lehman's Madlani argued that Clipper's majority stake in Capital and Generation (CAPGEN), an American wind farm joint venture, underpins the company valuation.
Clipper currently holds 72% in the CAPGEN venture, and has been looking to reduce the stake. Management has indicated that the early-stage talks have centred at a provisional valuation of around 300p per Clipper share, although this is non-binding and may change significantly once due diligence is completed. This would value the venture at around $900m (£450m), compared with the group's market capitalisation of £578m.
"Clipper’s stock price has been significantly trading at a discount to peers in the wind and renewables sector for a long time. On our revised forecasts, Clipper trades on a 2009 of 9 times (earnings) against a wind sector average of 20 times and a renewables sector average of 13.5 times," wrote Madlani.
"We believe that our turbine production forecast for 2009 is achievable by the company, perhaps even more so given the capital raise to provide further flexibility towards managing working capital over the coming year. However, even assuming our worst case bear scenario and leaving Clipper missing our forecast for next year by 30%, Clipper would still trade on a prospective PE of 13.6 times. Excluding the valuation of CapGen ... this would place Clipper trading on a 2009 PE of just 6.5 times. We believe therefore this leaves Clipper as attractively valued and that therefore, the current stock price is pricing in most of the potential disappointments that could take place over the coming year."
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