By Jeff Siegel
Google announced yesterday that it has ponied up $75 million for a wind farm in Carson County, TX. In it’s lock box of wind farm assets, this is number 15 for the Internet giant.
Patterson Energy Group (NASDAQ:PEGI), one of my top picks for 2014, is developing the project, which provides enough juice to power 56,000 homes.
As I wrote last year, Pattern Energy Group is an independent power company that owns and operates eight wind power projects in Canada, the United States, and Chile. Total owned capacity is just over one gigawatt.
Each wind project the company owns is contracted to sell nearly all of its output on a long-term, fixed-price power purchase agreement. Pattern also has two new projects in development. One is in Chile, a 115-megawatt project expected to start commercial operations in April 2014. The contract for this one runs through 2034. And the second project soon to go online is in Ontario. This one is a 270-megawatt project with a power purchase agreement locked in through 2034.
Overall, the weighted average remaining on contract life is about 19 years.
Management is quite conservative, and risks are minimal, as this is not a turbine manufacturer, but rather a developer operating primarily in wind-friendly regions.
Even with dirt-cheap natural gas, demand for wind in the right places remains strong.
Net profit for the first six months of 2013 grew from $6.44 million one year prior to $29.14 million, while revenue rose 62% to $102.54 million. Pattern has about $2 billion in assets and about $1.4 billion in liabilities. And for income-oriented investors, the company expects to offer a yield of approximately 6% [Ed. note: based on its $22 IPO price.]
For the 12 months ending December 31, 2014, management expects to generate $55.4 million for distribution and $217.7 adjusted EBITDA.
All in all, I actually like Pattern based on historical data and management’s ability to keep growth steady, but not overly risky. Whether or not that will be enough in today’s market is still questionable.
Broader market action and, of course, any potential loss of government support in Canada, the U.S., and/or Chile could chip away at this thing pretty quick. Even though power purchase agreements are already locked in, the market doesn’t typically distinguish these types of things when it comes to renewable energy. This isn’t necessarily a criticism, but rather a reality that investors should not ignore.
As well, while I love the target dividend of 6.25% [Ed Note: $1.25 at $20, the midpoint of the planned IPO range], I don’t know how much room that leaves for growth…
In any event, this deal should definitely draw some positive attention for PEGI.
To a new way of life and a new generation of wealth…
Jeff Siegel is Editor of Energy and Capital, where this article was first published.