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TerraForm Power, Inc. (TERP)

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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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Thanks dk1. Yes I think the non-controlling interest consideration for TERP is straight forward as its share roughly match SUNE's share. For CAFD it's more confusing as sponsors own a majority while non-controlling interest looks smaller than that.

I looked at presentation from NYLD and they made a big point of being free from IDRs. I agree with them IDRs severely holds back dividend growth outlook (after initial growth which is incentivised by it). 

I've also called yieldcos ponzi schemes. This applies when yieldcos pays more (e.g. to a sponsor) for assets than would be required to report profits. Sure it might take a decade or two until the fact that it doesn't add up hits shareholders in terms of DPS and PPS evaporation, but some might think that some might fear etc. Not sure if this realization is what's driven recent crash. Crashing PPS punctures a ponzi scheme, add threat of interest rate hikes in US for the remainder of this decade and you have a perfect storm for panic. I think the crash might have hit bottom now though and I'm entering here. I'll do it in a diversified way to avoid large exposure to a single yieldco. If I'm lucky this can form a stable cash flow generating portion of my portfolio for the future.

Despite these IDR and scheme worries I like yieldcos after crashing based on the fact that they give a lot of exposure to the business model I like, which is levered growth of generation asset base enabled by long-term stable cash flows. Before I liked sponsor side better, since their terms are much more favorable, but then you get a lot of exposure towards devco or manufacturing business too. Considering all effects I can't resist this yieldco entry point. Generally I always like to enter names who recently raised a lot of capital at higher prices since I get that fresh value at a big discount. In this case capital is always invested in stable cash flow generating assets so normal business risk don't apply (that raised capital can be completely burnt by management).

 

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I bought NYLD today. Along with ABY, GLBL, NEP and PEGI. They're all rocking already.

 

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I see very limited downside potential in yieldcos at current valuations.....market will get crazy again and increase their prices for whatever reason it finds and if yields go below 5%, I will sell them as I don't think that is sustainable...yieldco math is quite simple IMO...typical solar/wind projects get 8-10% equity IRR in the market and that is what yieldco investor can hope to get in the long-term if they buying at book value...yieldco trading at 2xBV and 3-4% dividend yield is simply taking money from new shareholders to pay for the olders ones (which are often sponsors)...and showing dividend growth of 10%+ is easy if you buy assets which have 8-10% equity IRR and you have to pay only 3-4% on the cash raised, but that dividend and hence dividend growth is not sustainable in long-term (and here we are talking of more than 5-10 years) but market does not want to look that far, otherwise no one can explain such volatility in companies, which have rather quite predictable cash flows!!

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I agree dk1. I'll collect dividends while yield are here in high single digits (GLBL is mid teens though) and book stocks gains by selling when the enter low single digit guided yields. And the rinse and repeat if opportunity comes back.

I like the idea of growthco a lot better as the value growth equation it adds up more easily there (not so PPS dependent), but I guess there might be less tax benefits then..?

 

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almost 8M TERP shares short, up 10% in first couple weeks of Oct.

 

Why does Yahoo finance show TERP float (~113M) almost 40% greater than shares outstanding (~80M)?

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yield is now ~9.7%

Is there something that I am not understanding about TERP?  Stock took a massive hit today.

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TERP in my opinion is very attractive at this price. While I do not want to take apart my position in CSIQ I may as it is incredibly priced. What most people do not realize that TERP does not share financial obligations of SUNE. It has ample amount of cash and it is getting to a point of profitability. TERP can buy plants from others if it wants to, if parent needs to sell plants third party.

This could be a quick gainer here. I will be watching tomorrow, and may join the yieldco.

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2 hours ago, odyd said:

TERP in my opinion is very attractive at this price. While I do not want to take apart my position in CSIQ I may as it is incredibly priced. What most people do not realize that TERP does not share financial obligations of SUNE. It has ample amount of cash and it is getting to a point of profitability. TERP can buy plants from others if it wants to, if parent needs to sell plants third party.

This could be a quick gainer here. I will be watching tomorrow, and may join the yieldco.

Very interesting.  You think market can separate TERP from SUNE if SUNE stock price keeps burning down?  Seems as though they are tied in lock step.

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11 hours ago, odyd said:

TERP in my opinion is very attractive at this price. ...

Is it from the point of yield at current PPS or more from PPS possible appreciation? 

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