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dydo

8point3 Energy Partners LP (CAFD)

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7 hours ago, odyd said:

It is a while about value of CAFD, but Konrad is pretty good,

He sees it as bad as me, stay away from this one.

https://www.greentechmedia.com/articles/read/first-solar-and-sunpower-are-considering-selling-their-yieldco

Mostly good article. Highlights a lot of points to consider. The idea to create your own CAFD measure to apply to all to make them comparable is intersting.

 

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CAFD just raised the dividend by 3%.  I wonder why they continue the show.

I mean if they don't have money to expand the business, then how will increasing the dividend help?  And the company is for sale anyhow, so why increase the dividend and make it that much harder for another yieldco to acquire and keep shareholders happy?

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According to Sparkspread final bids are due for 8P3 next week. I can see how the stock is up as a result, cannot see this price to remain. I think it is way too high.  

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31 minutes ago, dydo said:

According to Sparkspread final bids are due for 8P3 next week. I can see how the stock is up as a result, cannot see this price to remain. I think it is way too high.  

You still see $10 as about fair value?

You said you can't short, but what about buying puts?

It all depends on when you think they would announce the sale & selling price.  And then how quickly would the stock price adjust to the selling price?

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1 hour ago, sunnypease said:

You still see $10 as about fair value?

You said you can't short, but what about buying puts?

It all depends on when you think they would announce the sale & selling price.  And then how quickly would the stock price adjust to the selling price?

I see the equity value for plants, and it is not 900MW but 569MW direct ownership and they continue to confuse with an interest in statements. Yes, I am pretty convinced there is no more than $10 per share here and I would say less. One needs to know that debt must be acquired as well, that is additional $700M  plus for the buyer. I am posting a table to show what I see for CSIQ transactions, it is easy to take the price per watt and compare.  CAFD is worth $1.24B that is $2.17 per watt without debt. The price per watt for CSIQ projects is $2.04 AC (569MW is AC) including debt.   No interest is paid on current credit, just principal.

Think this way, $110M of CAFD for 14 years, no interest is paid. That is $1.54B in return, right? You pay $1.2B for equity and $700M for debt, debt which is going to cost 3 to 5% in interest per every year but let's take this out for now. So you bought a shell which makes no cash for $1.9B to get $1.4B return, $500M in a hole, as we sit here, still no interest. That $500M is over $6 per share. We are at $9 per share transaction to stay flat.  That is my point here. 

Caisse de dépôt et placement du Québec (CDPQ) bought 80% interest in 1.7GW Mexican projects. It is a mix of solar and wind, the price paid $1.3B or so about under a dollar. A lot of equity needs to go in yet, as the projects are not complete for a large part of it and further contribution. is required, but certainly, nobody will pay $3.33 per watt for $2.70 dividend in case of CAFD. My two cents. I do not recommend to short or play with this. I think it is a trap to have it and I would ask owners of the stock reflect financially why they own the stock at this price. 

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Travis comes up with $20 a share for CAFD!  (or about $4/watt! )

https://www.fool.com/investing/2017/10/10/terraform-powers-buyout-provides-blueprint-for-8po.aspx

His method of valuation is pretty crazy.

To his credit, he says the 3500 MW ROFO is worth a lot.

Is that something that is likely to be sold along with the company?  If so, it actually could be worth something, no?

Edited by sunnypease

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There is no value in ROFO, logically. Say I have a right to buy all CSIQ projects how much would you pay for this right?

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Thought of a possibility:

If FSLR feels that 201 will happen & they will have fat margins for 4 years, maybe FSLR buys 8point3.  They know SPWR is a little desperate and it would still be good to have a yieldco to sell projects to.  They would just need to buy SPWR's piece, and then inject enough capital into it to make it healthy again.

Actually, you thought of this Robert in your original FSLR article.

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FSLR needs money for capacity, the costs for it will take a good chunk. 

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Just finished (finally!) reading Tom Konrad's article about what other Yieldcos might pay for 8point3.

At the end, he guesses that 8point3 won't be sold, because the price will be too low to satisfy sponsors

Instead, they will cut the dividend, crater the stock price and sell assets piecemeal meanwhile slowly taking the company private by buying back stock.

I'm not sure if this makes sense.  Can they really get more for assets this way?

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Matt the irony of the valuation of CAFD  is found in the complete rejection of value in Canadian Solar portfolio. Yes, CSIQ does not pay dividends, and I can see this would not attract the buyer to the stock, but the industrial buyer wanting returns, would.

I just did another calculation of the IRR based on the pricing of the equity (stock) and debt valued at $709M. I used the most recent $110M cafd for 20 years as a return. A purchaser would have spent $1.9B to buy the interest worth 572.7MW ac.  Forgetting the MW for a moment, the IRR on investing $1.9B to extract, $2.2B is 1.23%.

At 3.9% IRR, the equity would have to be $10 (share price).

The CAFD's issue is that sponsors own 51M B shares. This ownership is free of cost to either SPWR and FSLR. They have no interest to jack the price up, any price is a bonus for them. Buying CAFD of the market is actually good business for FSLR. They are only buying a portion that they do not own.  So imagine they agreed to pay SPWR $10 per share. SPWR does not have to argue the math. They may offer public $12. It costs FSLR $616M plus the assumption of $709M in debt, less $50M promissory note etc.  Now that is very reasonable purchase.

I think it obvious that third-party buyer will not buy the stock. Travis is going to cost many people money in my opinion. I suppose FLSR will want the drop the price as much as possible and in this case, could force SPWR to sell for less. 

The bad part is that CAFD has no place to go. The dividend payment in my view will not grow past Q4. Any announcement disclosing bids could shake shares down. So FSLR may be in the opportune position here, but at the end why bother?

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Hi Robert -

Thanks for sharing your calculations & view.

I'm trying to recreate your numbers.. as an exercise to better understand finances.

I think what you were doing is comparing the current value of the company vs the final value of the company (20 years of cafd) & then computing the IRR to go from current to final.

Current value is 1.23B equity+700M debt.  About 1.9B.

final value:  110M * 20 years = 2.2B

How can I figure out IRR given a starting and ending value?

Aha, well I've used The Google & found that IRR is related to Net Present Value & the math is hard enough for me to attack this tomorrow.

 

Yes, FSLR could buy 8point3. I wonder if a 201 pro-tariff decision would make them more interested in keeping 8point3.  It would certainly lower their need for cash.

At the current share price, why doesn't 8point3 sell equity to raise cash?  They could then buy a project to raise cafd.  Or is the current situation not possible to fix with an equity raise? Tom said that 8point3 would need to cut the dividend by half in order to return to a level where they can refinance with amortizing debt at current interest rate levels.  

Matt

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57 minutes ago, sunnypease said:

final value:  110M * 20 years = 2.2B

How can I figure out IRR given a starting and ending value?

Aha, well I've used The Google & found that IRR is related to Net Present Value & the math is hard enough for me to attack this tomorrow.

That's not the final value. This is a number of payments generated as cafd.  To calculate IRR you put the cost of the investment and a number of years of payments.  20 years times 110M equals to $2.2M in return. Based on 1.9M invested.  For 20 years this is 1.3% IRR

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10 hours ago, dydo said:

That's not the final value. This is a number of payments generated as cafd.  To calculate IRR you put the cost of the investment and a number of years of payments.  20 years times 110M equals to $2.2M in return. Based on 1.9M invested.  For 20 years this is 1.3% IRR

hurrah.  I just used numpy (python library) to calculate this.  Fun!

 

import numpy
flows = []
flows.append(-1900)
for i in range(20):
    flows.append(110)

result = numpy.irr(flows)
print result

 

result is: 

0.0143876377492

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Something strange going on with 8point3 share price this morning.  It's down 12% in premarket, coming back up, but I can't find any news.

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Finally sold and still overpaid. No $20 by Travis. Nor my $11. This premium to tariff. 

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Getting closer to $12. One thing I did right assessing this stock.

 

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About $270M, I think, 22M shares or so. Not sure 100% now. SPWR gets enough to pay the convertible this July. 

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