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Enron Mail |
Good Morning,
Attached, please find the latest issue of our Independent Power Weekly. <<IPW060401.doc<< Summary: 1. IPPs Fall 4.0% Last week our IPP composite fell 4.0%, underperforming both the NASDAQ (+2.4%) and the S&P 500 (-1.1%). Reflecting strong first quarter earnings results, International Power was the best performer in the group, rising 3.4%. Calpine was the weakest performer, declining 10.3%. 2. New Issuance, Soft Power Prices and Political Questions Dampen Price Performance In our view, the group's recent lackluster stock price performance reflects the following: 1) Pressure Resulting from Equity New Issuance Activity; 2) Concern Over "Soft" Spot and Forward Power Prices; and, 3) Lingering Uncertainty Surrounding the Power Shift in the US Senate. 3. Outlook Unchanged; Time to Focus on Valuation! Despite the various political and power market concerns, we believe the fundamental investment outlook for the group remains strong. While fixating on the various political and power market concerns, we believe the market has not focused enough on increasingly attractive current valuations. We believe the uncertainties surrounding re-regulation and political backlash are already embedded in the stock prices. While the pure play US IPP share prices have increased 3.1% on average, our 2001 and 2002 EPS estimates have increased nearly 25% and 24%. Consequently, over the period the average P/E multiple has declined by 17% and 20%, based on 2001 and 2002 EPS, respectively. 4. Embedded Expectations are Low We draw 2 conclusions from the above data: 1. Stock prices reflect normalized power market conditions 2. Re-regulation and backlash uncertainty are already reflected in stock prices. 5. WSJ Article Questions CPN's Lack of Reserves On June 1, 2001, an article appeared in the Wall Street Journal highlighting the fact that CPN has not taken reserves against nearly $267 million of receivables from PG&E. In our view, CPN's rationale for not reserving against its PG&E receivables is valid. Versus the other major IPPs, CPN's PG&E exposure is unique in that all of its current receivables have resulted from direct power sales to PG&E under long-term contracts. Regardless, it is important to put this issue into perspective. Even assuming a worst case scenario under which CPN is unable to recover any of its PG&E receivables (highly unlikely), the investment merits of the CPN story would be unaffected. Failure to recover would have no impact on CPN's future earnings power or growth rate. Regards, Neil Stein 212/325-4217 Bryan Sifert 212/325-3906 This message is for the named person's use only. It may contain confidential, proprietary or legally privileged information. No confidentiality or privilege is waived or lost by any mistransmission. If you receive this message in error, please immediately delete it and all copies of it from your system, destroy any hard copies of it and notify the sender. You must not, directly or indirectly, use, disclose, distribute, print, or copy any part of this message if you are not the intended recipient. CREDIT SUISSE GROUP and each of its subsidiaries each reserve the right to monitor all e-mail communications through its networks. Any views expressed in this message are those of the individual sender, except where the message states otherwise and the sender is authorised to state them to be the views of any such entity. Unless otherwise stated, any pricing information given in this message is indicative only, is subject to change and does not constitute an offer to deal at any price quoted. Any reference to the terms of executed transactions should be treated as preliminary only and subject to our formal written confirmation. - IPW060401.doc
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