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by Debra Fiakas CFA
Two weeks ago TerraForm Global, Inc. filed yet another amendment to
its S-1 registration statement as the SunEdison, Inc. (SUNE:
NYSE) spinout grinds forward with its initial public offering.
TerraForm is a collection of SunEdison’s renewable energy
properties, primarily its solar, wind and hydro-electric power
generation facilities around the world. The current portfolio
sums up to over 1,400 megawatts in total generating capacity, of
which over 900 are spoken for through power purchase commitments
that cover the next 19 years. On a pro forma
basis, the assets produced $298.9 million in total revenue,
providing $44.1 million in net income.
This will be SunEdison’s second spinout of renewable assets. TerraForm
Power, Inc. (TERP:
NYSE) was spun out of SunEdison a year ago, gaining 48% from its IPO
price of 25%. Even at its present elevated price, the stock
offers a dividend yield of 3.3%. The success of SunEdison’s
first ‘yieldco’ is likely to influence the pricing and trading of
the international properties now up for grabs if the SEC can be
SunEdison has been the premier acquirer of renewable energy
projects. Its reputation precedes it, opening doors and
priming negotiations. A central point of the case for
Terraform Global is the existence of over 600 gigawatts of power
generating capacity that the company apparently considers fair game
for adding to the portfolio. Seven acquisitions are already in
the pipeline, representing 921.7 megawatts of generating
SunEdison is projecting 32% compound annual growth over the next
five years for Terraform Global and expects to have $231 million in
cash available to distribute as a dividend in 2016. Projecting
cash generation in the next year is relatively easy given all those
power purchase agreements that lock in sales levels and
pricing. However, in predicting high double digit growth for
the next five years, SunEdison could be out on the proverbial limb.
Indeed, with big numbers like 32% growth etched into the prospectus,
do not be surprised if Terraform Global debuts at a health multiple
of earnings - a multiple that might be sustainable if
growth fails to materialize. Thus it might be wise to wait for
the stock to mature a few weeks before jumping into long
positions. I note that the ‘big sister’ Terraform Power closed
near $32.00 on its first day of trading, but within three months had
skidded below its offering price. This presented an
interesting window of opportunity to access shares at compelling
prices. It will be worthwhile watching this new IPO for
Debra Fiakas is the Managing Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.
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