odyd

Pattern Energy Group Inc. (PEGI)

138 posts in this topic

PEGI is about to face its moment of truth against the downtrending 200 MA ($20.69), which has been above the share price since the summer 2015 when all the yieldcos broke down. If they break it, prepare for takeoff! (it could drag up the rest of the yieldcos, and it can even coincide with the end of the whole SUNE drama so its yieldcos can trade at their true value). I'll be watching closely and might initiate a position if PEGI breaks this level. 

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I was looking at PEGI and trying to get my head around its valuation, but I find it not so cheap. So wanted to share my thoughts to see if I am missing anything.

From portfolio perspective, it is certainly top-notch. Also no IDR, strong parent with one of the best corporate structure.

From valuation perspective, it seems slightly expensive on EV/EBITDA basis. I use this instead of div yield as not all companies amortize debt fully and depending on the difference in corporate and project level debt, this can lead to quite some difference. Pattern amortized only around 54M of its debt in 2015, from total of around 1.8B. This is quite low IMO and potentially overstates the cash available for distribution. Also it is trading at close to 2xBV...

Would be great to know what others think of this.

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BV fully agree. Their CAFD expectation is certainly attractive based on the increase in revenues, but the price of new contracts is curtailing the revenue growth to a degree. In my opinion, they will have an issue in time with their agenda to increase CAFD. The CAFD uses a lot of the cash flow already I think around 90% leaving little for investing or even just to keep the cash on books. I still like the stock. I think it can go up to about $30, but I would be selling at $25 if I held it to this point. Yield is fueling it my opinion the equity part. I got into NEP. Under 1 BV and I think they can move a lot on yield I think when things are good it can go to $45 per share.

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Looks like what I said about the yieldco space recovering is taking place. Many are crossing the 200MA which is a very good technical indicator. Let's see if they remain above.. PEGI has already crossed it. 

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2 hours ago, ravalos said:

Looks like what I said about the yieldco space recovering is taking place. Many are crossing the 200MA which is a very good technical indicator. Let's see if they remain above.. PEGI has already crossed it. 

Exciting times

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1 hour ago, odyd said:

PEGI disappoints, in my opinion, enters to sell $200M worth of stock

Isn't this good news? Selling stock at PB > 1 means growth is funded in an anti-dilutive manner for existing share holders (BV per share increases from the stock sale).

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Market didn't seem to like the ER from PEGI. I quickly skimmed the ER and the thing that jumped out at me was the plants power generation, below expected as a result of "El Nino". Winds are not blowing as strong.. This is the problem with wind assets, they are less reliable than solar. 

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34 minutes ago, explo said:

Isn't this good news? Selling stock at PB > 1 means growth is funded in an anti-dilutive manner for existing share holders (BV per share increases from the stock sale).

My comment is not about ATM, I am not interested as they are not able to produce even symbolic EPS. I thought with asset increase they can cover up their operating expenses and financial ones. Not the case. If they are selling equity it is not to grow asset pool but to pay a dividend. This scenario is too much of a risk, NEP is a lot better value here. 

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1 hour ago, odyd said:

My comment is not about ATM, I am not interested as they are not able to produce even symbolic EPS. I thought with asset increase they can cover up their operating expenses and financial ones. Not the case. If they are selling equity it is not to grow asset pool but to pay a dividend. This scenario is too much of a risk, NEP is a lot better value here. 

Ok. I haven't digged into the report yet.

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Dividend 39c on CAFD of 42c looks like a really high payout ratio.. Shouldn't they keep some cash to pay down debt? Or do they count on better years for that?

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Pattern announced a rather cheap sounding purchase from their developer as an interest of 84% in a 324MW facility for $269M. There are also transmission lines as part of the acquisition.

http://finance.yahoo.com/news/pattern-energy-commits-acquire-324-220700396.html

They have also bought rights from SunEdison for 600MW King Pine wind farm in Maine.

That news has two interesting observations on the back of the Brookfield investment in TERP.  After the initial fall of value for yieldcos, they have been relatively stable. I think we are slowly arriving at mind change junction where yieldcos will be pretty again.

Secondly, SUNEQ is selling things, and it does not appear it will emerge from bankruptcy. Good for others if this happens, in particular, if solar rights to projects get to be sold as  I was suspecting FSLR, SPWR and CSIQ should have some wins here.

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1 minute ago, ravalos said:

Interesting they don't disclose financial terms, I wonder why that is..

Because a discussion is a price setting activity. They will either announce it or show it in the 10-Q when it happens. I think they made this news just to show the market they are buying assets with the offering.

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That 90MW would be expensive I imagine somewhere north of $3 per watt, but it would have a high FiT rate. Those projects are the part of Samsung's wind commitment to Ontario. Solar commitment has been built and will be built in part with CSIQ.

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The rate is $1.46 for 90MW, or $132M, not bad, and wonder how much debt is still against it.

There is an Oppenheimer rec for PEGI at $36,

My original was about $35, the rec is from Sept 8th,

Oppenheimer initiated coverage on Pattern Energy Group (NASDAQ: PEGI) with an Outperform rating and a price target of $36. Analyst Colin Rusch sees Pattern Energy as having a strong ROFO list and pipeline of potential assets with an experienced, sophisticated sponsor, and a strong technical team.

"We expect PEGI to grow its dividend to $1.96 by 2018. In our dividend discount model, we then estimate 4.5% short-term annual dividend growth through 2021, and long-term annual growth of 2% thereafter. Using a 7.9% required rate of return, we arrive at an intrinsic value of $36 per share. We see PEGI as having a strong ROFO (right of first offer) list of projects and pipeline of potential assets with an experienced, sophisticated sponsor and a strong technical team, which we believe bode well for consistent accretive growth," said Rusch.

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