odyd

TerraForm Power, Inc. (TERP)

777 posts in this topic

It will be interesting to see what TERP reports on Thursday. If they have no profit I would say something is also wrong with them as much as with the sponsor. ABY has profit in Q2, so it can be done.

Edited by odyd
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I did look into this sometime back and got confused with following: it has 140M shares outstanding (class A and B), but on top of that it has significant minority interests and their annual report says that significant share of this also belongs to SUNE...so overall it was bit confusing to figure out how much of these assets belong to common shareholders...

Also looking at BV, TERP still seems to trade at significant premium to equity..for assets yielding around 8-9% of equity IRR (which is typical for solar projects in UK, US), I will not prefer to pay multiple of equity...dividend yield can be high but will not be sustainable as assets have definite lifetime...

compare to this ABY or NYLD offer similar yield but have better dynamics IMHO i.e. NYLD does not have IDR structure, also portfolio is largely wind which has lower PPA and hence lower contract risk, also NRG is better parent than SUNE and all assets are US based; for ABY valuation is attractive, but Abengoa is in kind of trouble at the moment and their LatAm exposure is bit risky, also they have large no of CSP projects which IMO is higher tech risk...

TERP will also be forced to raise equity at current low prices IMO as SUNE will need it to offload developed projects..while NYLD has publicly said in their conference that they can live without any equity raise for a while...

will like to hear other opinion on these.

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Dk1 I agree with your points. I had the same issue with the stock when it was twice current price. Now yield is 12.5% for 2016 and 14.5% for 2017 based on $14 PPS and the admired $1.75 2016 DPS and $2.05 2017 DPS. PPS at book value would move those passed 20% which seem extreme unless the DPS announced are completely unsustainable for more than 10 years, which I agree it may very well be.

My main thinking is I'm getting in here below recent capital raise levels and raise capital was spent on hard assets producing stable cash flow. Those assets are booked at cost and real market value might differ from acquisition cost. Normally for a non dividend paying PV plant owner company I think price would be higher than book as you get a lot of growth opportunity from ability to use stable cash flow to expand generation asset base using high leverage. 

I don get a bit worried about the economics of TERP. What do the 10 year average annual levered cash-on-cash yield of 9% mean? Does cash-on-cash yield metric make sense for investments in assets with expiration dates?  Are they hiding real unlevered IRR performance of acquired assets? I'm thinking of rhetoric in recent announcements of assets acquisition plans.

The yieldcos keep dropping so my entry feels like CSIQ entry pre Q2 ER, i.e. premature.

I'll check out NYLD too.

 

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A quick look at NYLD just on Yahoo finance pages shows no minority, but significant intangibles.

 

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I've entered a while ago, but dumped most of them, as they can't find a bottom. I think their problem is now to show, that their businessmodell does still work in our current enviroment with higher yields / lower PPS, as they are relying on a combination of debt (rates will rise) and share-sale (lower price = higher rates) without lowering the payout-ratio for current shareholders. After the hole sector, or at least most of them has proven teir businesmodell is sustainable, the sector will rise again.

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I don get a bit worried about the economics of TERP. What do the 10 year average annual levered cash-on-cash yield of 9% mean? Does cash-on-cash yield metric make sense for investments in assets with expiration dates?  Are they hiding real unlevered IRR performance of acquired assets? I'm thinking of rhetoric in recent announcements of assets acquisition plans.

 

Thanks for your reply..

IMO cash on cash yield does not make much sense due to expiration dates..even if assets are still functional, new PPA will be much lower..solar will be much cheaper in 20 years and that will be the new PPA price!! 20 years of 9.5% unlevered cash on cash will mean you get 7% unlevered IRR ignoring the life after 20 years...with debt below 5%, you can certainly get equity IRR of 8-10% for these projects and that is how these projects were sold in germany and other markets before yieldcos became popular...and that is why I thought BV is good way to look at this as I want my investments to generate at least 10% ROE on compounding basis.

will look at the other points and will get back to you on this later.

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Hi Explo,

sorry for delay, got caught up in number of things and then going through all 10-K and Qs took some time. 

Intangibles: all yieldcos have some...amount depends on how book value was recorded by book value..NYLD being largest and having longer PPA terms result into larger intangibles...but I think it should be fine.

TERP: actually non-controlling interest can be kind of ignored...we can compare the BV of total equity including non-controlling with total number of shares (class A and B) x market price as class B shares don't have economic right, but SUNE (owner of class B shares) has that much share of economic right in TeraForm LLC, which is the holding company for all projects...TerraForm controls TeraForm LLC and includes that share as non-controlling shares...kind of confusing but that means TERP market value is close to book value, so makes sense and I think with that it is certainly interesting to buy...though I do think if TERP prices remain depressed, they might have issue in reaching 2016 and 2017 DPS as that probably based on them raising money cheaply in market and acquiring some assets!!

 

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