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NextEra Energy Partners, LP (NEP)

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Different profile than SUNE's yieldcos. Big strong partner. Long stable DPS growth outlook. Thus offer less current yield, but PPS still down a lot recently, similar to TERP. Listing yesterday's news again here:

Partners, LP completes the acquisition of natural gas pipelines in Texas: http://finance.yahoo.com/news/nextera-energy-partners-lp-completes-104500531.html

NextEra Energy Partners expects the NET Midstream acquisition to contribute adjusted EBITDA and CAFD of approximately $145 million to $155 million and $110 million to $120 million, respectively, on an annual run rate basis as of Dec. 31, 2015. If certain expansion projects are completed as planned, the acquisition is expected to contribute adjusted EBITDA and CAFD of approximately $190 million to $210 million and $135 million to $155 million, respectively, on an annual run rate basis as of Dec. 31, 2017.

NextEra Energy Partners expects the Jericho acquisition to contribute adjusted EBITDA and CAFD of approximately $40 million to $45 million and approximately $20 million to $25 million, respectively, on an annual run rate basis as of Dec. 31, 2015. See Definitional Information below for definitions of adjusted EBITDA and CAFD for the NET Midstream and Jericho acquisitions.

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Travis' view.

Why NextEra Energy Partners LP Plunged 23% Last Month
The selloff in yieldcos hit this stock especially hard

http://www.fool.com/investing/general/2015/10/05/why-nextera-energy-partners-lp-plunged-23-last-mon.aspx?source=eogyholnk0000001&utm_source=yahoo&utm_medium=feed&utm_campaign=article

 

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EBITDA and CAFD numbers on the gas pipeline does not look that attractive...much lower than 9% cash on cash yield that solar/wind projects have typically! Also I am not sure about economics of the gas pipeline and how contracts work there...some diversification if one wants...

Also did you have a look at the legal structure? I really didn't understand how much class A shareholders get and how do I look at the equity BV on balance sheet.

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EBITDA and CAFD numbers on the gas pipeline does not look that attractive...much lower than 9% cash on cash yield that solar/wind projects have typically! Also I am not sure about economics of the gas pipeline and how contracts work there...some diversification if one wants...

Back of envelope.. The 2.1b cost seem to include expansion capex that would allow 200m EBITDA. If this is constant over the 20 year contract period it is around 7% unlevered IRR before tax assume no residual value. If residual value of assets are higher (pipes carrying gas should live longer than panels and inverters..?) than typical for PV plant that might add more to the IRR than in a PV plant calculation.

The Jericho Wind farm acquired from sponsor looks expensive though.

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Also did you have a look at the legal structure? I really didn't understand how much class A shareholders get and how do I look at the equity BV on balance sheet.

I need to learn more. This was more of a shoot first ask later move. To mitigate uninformed risk i diversified my 38% portfolio stake in yieldcos among 7 companies who all lost a lot of PPS and offered high yield now.

Also it was a trading thing. Since August 24 my non-yieldcos are up a lot while the yieldcos are down a lot since then. I'm playing that spread with this move, but hopefully I can ride it a bit and add to my non-yieldco share in the long run.

 

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Parent's help is everything  to the market. Moody's view contradicts ours. Similarly we thought here that FW acquisition was expensive and difficult to carry, Moody's upgraded all TERP debt and raised the profile to positive at the time, when stock was in $40s. Moody's upgrade is a mastery of obvious, stating problems, but stating future outcomes comes from other skills and should be clearly separated.

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I bought some NEP today. Reporting on April 28th should be getting into a dividend soon, maybe 0.32 per share. Aiming for 1.41 2016Q4 (payable in February 2017). I have a feeling they could try harder than that and yield could be better.

I think that as soon as SUNE is done, yieldcos will get back to normal evaluations. NEP, PEGI I find as the most attractive ones leaving room to go up in equity.

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Interesting fact and PG6 can probably comment on this. Distributions paid by NEP are called as non-dividend. They are also called as the return of capital.  In my tax-free account, it does not matter but for those who pay taxes, this would be a taxable gain.

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Couple interesting facts on NEP. If you look at their results for Q4 they look a lot like TERP. The difference is the amount of CAFD for the year being $126M versus three-quarters for TERP being 175M. However, TERP's does not deduct debt service while $126M does, $107M in interest payments and $80M in principal.

2016 CAFD expectations are $210M to $290M, after $220M to $260M in servicing debt. So in the essence, they are showing to double their CAFD from $126M in midd range. They have added major pipeline acquisition in October as well 149MW of wind.  Another 300MW of wind was added in February of this year. The common share sale paid for it. Total MW are around 2.5GW with Feb acquisition.

I snapped their ROFO portfolio nice to see adding solar.

I feel that yieldcos will pick up, and they will get a lot more attention. I think this one can trade as high as its parent at 2.95% yield and $1.41 end of 2016 this is $47 per share.

I think that a lot of material will be written to show strong yieldcos and people will flock to them when TERP, GLBL situation clears.

NEPROFO2016.png

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I was making balance sheet comparison to PEGI as well. I think this offers an opportunity for some interesting conversations as the structure for NEP is interesting and may have not as attractive characteristics to some due to partnership structure. Still the comparison shows a lot of strength in NEP and weaknesses in PEGI.

I am looking forward to the results for Q1. If I get comfortable to review the results I may write about it on SA. I think comparing it to PEGI could be an educational experience. 

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All the shares issued by NEP acquire ownership in NEP OpCo. Similar idea as Terra Operating LLC.  NEP with the recent offering will have around 29% ownership upon 40M shares of NEP. The value BV is around $29.6 per share. So stock at 26.31 is selling under the book. The total equity is about $1.5B.

Those pipelines in a pro forma statement offered around $548M in revenue for 2015 with net income of $72M. Estimates on Yahoo see around $783M, I expect a bit more in revenue for the 2.5GW, 300MW added in Q1 and 149MW added in Q4. Probably $800M in revenue for 2016 based on existing assets. $120M in net income. Having a hard time calculating the net income to NEP. It could be as low as $15M and as much as $39M.

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Robert, I have tried to look into NEP...seems too complicated to me due to their limited interest in the opco! Also their Dividend is already above minimum required for IDR...which means return on new projects will be rather low.

How do you account for their non-controlling interest..I was trying to value the Opco without considering non-controlling interest...if I put similar level of EV/EBITDA like others..or even higher and get an equity value from this...then NEP has only 23% economic interest in the Opco, on that basis it does not look at all cheap to me!

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I think NEP is more expensive because of less risk to it's ability to grow dividend. I still think it is hard to pick in this group as we have to discount so many future years of cashflow that cointains unknown growth ability through unknown cost of capital. So I keep the basket strategy for the yieldcos, collecting the growing dividends and trading the relative moves to grow that dividend base.

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3 hours ago, dk1 said:

Robert, I have tried to look into NEP...seems too complicated to me due to their limited interest in the opco! Also their Dividend is already above minimum required for IDR...which means return on new projects will be rather low.

How do you account for their non-controlling interest..I was trying to value the Opco without considering non-controlling interest...if I put similar level of EV/EBITDA like others..or even higher and get an equity value from this...then NEP has only 23% economic interest in the Opco, on that basis it does not look at all cheap to me!

As I wrote, NEP has issued 40M in shares, with the last 11M added in March. This is $1.1B in equity; They have around 1.6B in equity including NCI in the company with 655M being the NEE management or something like that. However, NEP Opco is owned by 71% interest by NEE. There is no accounting for it as NEE owns free shares. Every time NEP sells to public, it gives proceeds to OpCo and increases its ownership of the assets.

Attached illustrates the value of the company (NEP) as consolidated Opco. The critical part is that NCI is 633M, but there are shares which are free, and they have no value as equity. However, their economic interest is 71% of proceeds. EV for NEP LP is $29.60.  You are right IDR has a right to the CAFD, but IDR will be considered as an expense, which improves the cash flow. If you look at their math CAFD for 2016 running is around $290M, we are talking about after debt. PEGI reports CAFD without interest payments here all is paid.. at 50% of that amount you have $145M for CAFD. Distributions are only paid to NEP units, and there are only IDR fee payments to NEE management. I think the amount of dividend say at $2 would be only $80M, so in theory, you would need $160M to pay it. Again after debt service OpCo is having $290M CAFD.

The stock is a gem, and if people wake up to it, you could see the value of $1.1B for NEP stock plus a premium on quality. I am thinking in line of $35 relatively quick. For a patient person, $40s are possible.

 

nepcapital.PNG

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Sorry for asking again..but I don't fully understand it...

I think it does not matter that NEE shares are free, but they have a 71% claim...so they can claim 71% of cash generation..is that correct?

If that is the case, CAFD available to public is only 23% of total CAFD..on 290 that is about 67M...at share price of 28 and 40M shares total worth of this cash flow stream is 1120M...that does not sound very attractive to me.

I have another question...how much debt service is included in this calculation of CAFD..I looked into 10-K but can't see the calculation of CAFD in that....could you please help me with that?

Thanks for all your comments..really appreciate this informative discussion on the yieldco finances.

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Only nep shares get distribution. IDR fee is paid to other shares. The payout is 50% IDR 50% nep when it comes to division . I do not have a lot of time to go any further I explain all of in the post before, I will put more detail over the weekend

Sent from my HTC One_M8 using Tapatalk

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Last thing you are confusing ownership percentile with distribution percentile. Two different things.

Sent from my HTC One_M8 using Tapatalk

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