DUET’s Simplification is Minor but Worthwhile

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Management proposes modestly reducing DUET’s complexity and opacity via a restructure aimed at reducing the number of stapled entities in the group from six to four. DUET originally comprised four stapled entities, but the internalisation process in late 2012 required the number to increase to six.

At the same time, the group will create a corporate arm to control equity in the operating businesses and a funding arm to hold debt investments in those businesses. Currently, no single DUET entity controls the operating businesses and each has a different board of directors. The restructure will establish clearer lines of authority, and should allow more effective and efficient decision making.

The firm expects to save AUD 1 million per year from head office cost savings following the simplification. Additionally, AUD 5 million of working capital will be freed up. One-off implementation costs of AUD 10 million are expected, roughly half going to former managers Macquarie (ASX:MQG) and AMP (ASX:AMP).

Investors are unlikely to notice any changes. Nonetheless, we view the simplification as a mild positive and recommend investors vote in favour at the meeting on 18 July 2013. The independent expert and directors unanimously recommend the proposal.

Separately, Multinet Gas is appealing the regulator’s decision to exclude AUD 30 million in IT capital expenditure incurred in 2012 from its regulated asset base (RAB) for the current regulatory period. Oddly, the regulator proposes adding the expenditure to RAB in 2018, in time for the next regulatory period. We think Multinet’s appeal makes sense and is likely to succeed, suggesting an additional AUD 45 million in revenues from 2013 to 2017.

 

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