Tom Konrad CFA
After two weak months, June brought a strong recovery to clean energy stocks and the market in general. The broad market benchmark IWM put on 7.2%, reversing its previous loss for the year to enter the 4th of July holiday up 4.7%. My clean energy benchmark PBW shot up 8.6%, for year to date gains of 9.9%. Meanwhile my relatively conservative 10 Clean Energy Stocks for 2014 model portfolio rose 3.6%, retaining its lead on the broad market with a 7% gain so far this year, but falling back behind more volatile clean energy stocks.
Performance details are shown in the chart below, as well as in the individual stock notes which follow. Note that the chart is click-able for a larger version. The numbers to the left of the blue diamonds are US$ returns since the last update, those on the red bars are returns so far this year.
Individual Stock Notes
(Current prices as of July 3rd, 2014. The “High Target” and “Low Target” represent my December predictions of the ranges within which these stocks would end the year, barring extraordinary events.)
1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/26/2013 Price: $13.85. Low Target: $13. High Target: $16. Annualized Dividend: $0.88.
Current Price: $14.59. YTD Total US$ Return: 8.5%
Sustainable Infrastructure REIT Hannon Armstrong paid a second quarter dividend of $0.22. I had hoped for a small dividend increase, but given that the company’s policy is to pay 100% of core earnings in the form of dividends, I will place more importance on the company’s soon-to-be announced second quarter core earnings than on the dividend payment. I hope to see core earnings on track for the 15% annual increase management has said to expect through the end of 2015.
2. PFB Corporation (TSX:PFB, OTC:PFBOF).
12/26/2013 Price: C$4.85. Low Target: C$4. High Target: C$6.
Annualized Dividend: C$0.24.
Current Price: C$4.83. YTD Total C$ Return: 2.1%. YTD Total US$ Return: 2.7%
Green building company PFB Corp did not release any news. The stock’s partial reversal of earlier gains may have been the result of weaker numbers in the US housing market.
3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/26/2013 Price: C$4.05. Low Target: C$3. High Target: C$5.
Annualized Dividend: C$0.30.
Current Price: C$4.35. YTD Total C$ Return: 28.9% . YTD Total US$ Return: 29.7%
Independent power producer Capstone Infrastructure announced its regular quarterly dividend of C$0.075, payable to shareholders of record as of July 31st. After the stocks’ recent gains, RBC Capital lowered its rating to “sector perform.” I also think we have seen most of the gains we can expect from Capstone stock this year, but continue to hold my position. I think the 7.4% current yield remains quite attractive and could lead to additional small capital gains while affording significant downside protection.
4. Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF).
12/26/2013 Price: C$4.93. Low Target: C$4. High Target: C$7.
Annualized Dividend: US$0.28.
Current Price: C$5.45. YTD Total C$ Return: 13.2% . YTD Total US$ Return: 13.9%
Waste heat recovery firm Primary Energy posted significant gains in June after confirming market rumors that it “is engaged in a strategic review process to generate shareholder value,” although no agreement has been reached. The possibility that Primary Energy might be for sale was part of the reason I included the company in the portfolio at the start of the year.
5. Accell Group (Amsterdam:ACCEL, OTC:ACGPF).
12/26/2013 Price: €13.59. Annual Dividend €0.55 Low Target: €11.5. High Target: €18.
Current Price: €13.90. YTD Total € Return: 6.3% . YTD Total US$ Return: 7.0%
Bicycle manufacturer and distributor Accell Group paid its 2013 annual distribution of €0.55. The dividend is set on an annual basis based on last year’s profits. Since sales have been better so far this year, I expect next year’s distribution to be higher.
6. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/26/2013 Price: C$10.57. Low Target: C$8. High Target: C$16.
Annualized Dividend: C$0.585.
Current Price: C$12.33. YTD Total C$ Return: 19.0% . YTD Total US$ Return: 19.7%.
Leading transit bus manufacturer New Flyer announced it would consolidate its transit bus and bus rapid transit models around its Xcelsior platform. Production of the LFW and BRT models acquired last year with the purchase of rival NABI would be phased out in the second half of 2015. The Excelsior’s BRT styling options would be enhanced by building on NABI’s BRT experience. Cannaccord Genuity reaffirmed its hold rating on New Flyer, but upped its price target to C$11.75 from C$11.50.
7. Ameresco, Inc. (NASD:AMRC).
12/26/2013 Price: $9.64. Low Target: $8. High Target: $16. No Dividend.
Current Price: $7.19 YTD Total US$ Return: -25.4%.
Ameresco CEO and founder George Sakellaris added another 50,000 shares to his already large stake in the energy performance contracting firm. This and previous insider purchases discussed last month pushed the stock over $7, well above the low of $5.59 seen in early May.
8. Power REIT (NYSE:PW).
12/26/2013 Price: $8.42.
Low Target: $7. High Target: $20. Dividend currently suspended.
Current Price: $9.11 YTD Total US$ Return: 8.2%
Solar and rail real estate investment trust Power REIT paid the first quarterly dividend on its preferred shares (NYSE:PW-PA).
9. MiX Telematics Limited (NASD:MIXT).
12/26/2013 Price: $12.17. Low Target: $8. High Target: $25.
Current Price: $10.25. YTD Total ZAR Return: -13.7%. YTD Total US$ Return: -17.1%
Investors seemed unimpressed with the full year results of global provider of software as a service fleet and mobile asset management, MiX Telematics at the start of June. While I found the report in line with the company’s business plan and mildly encouraging overall, the stock continued to fall after the announcement.
Company insiders seemed to share my positive sentiments, and began purchasing the stock on the open market. MiX CEO Stefan Joselowitz bought the equivalent of 26,000 shares at $9.77 [pdf] while a company director bought the equivalent of 4,844 shares at $9.40-$9.50 [pdf]. This news seems to have reversed the stock’s decline, and MIXT ended the month up by 1.6%.
I also added to my positions in the $9 range during the month.
10. Alterra Power Corp. (TSX:AXY, OTC:MGMXF).
12/26/2013 Price: C$0.28. Low Target: C$0.20. High Target: C$0.60. No Dividend.
Current Price: C$0.34 YTD Total C$ Return: 21.4% . YTD Total US$ Return: 22.2%.
The stock of renewable energy developer and operator Alterra Power gained over 12% in June, but without significant news.
Two Speculative Clean Energy Penny Stocks for 2014
Ram Power Corp (TSX:RPG, OTC:RAMPF)
12/26/2013 Price: C$0.08. Low Target: C$0.00. High Target: C$0.22. No Dividend.
Current Price: C$0.03 YTD Total C$ Return: -62.5% . YTD Total US$ Return: -62.3%
Terminal US$ Return -57% (when I said to sell on June 3rd.)
So far, the decision to sell geothermal power developer Ram Power last month seems to have been a good one. I am no longer following the stock.
Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF).
12/26/2013 Price: C$0.075. Low Target: C$0.00. High Target: C$0.22. No Dividend.
Current Price: C$0.10 YTD Total C$ Return: 33.3% . YTD Total US$ Return: 34.2%.
Wind project developer Finavera gained on the issuance of an Environmental Assessment Certificate to the Meikle Wind project recently sold to Pattern Energy Group (NASD:PEGI.) This brings Finavera one step closer to receiving the approximately $19 million which will be due from Pattern upon the arrangement of project financing.
Nevertheless, the stock remains in the doldrums due to lack of promised announcements regarding Finavera’s future renewable energy development ventures. The press release included some familiar boilerplate “With proceeds from the sale, Finavera plans to aggressively reduce short and long term debt and focus on another fast growing area of renewable energy development. Finavera is working on transactions to put forward for shareholder approval at our AGM,” but the lack of detail is clearly frustrating to shareholders.
Final Thoughts: The Yieldco Boom
Valuations of alternative energy “Yeildcos” such as NRG Yield (NYSE:NYLD) and the recently launched Abengoa Yield (NASD:ABY) have risen rapidly in recent months, to the point where there is little more yield in many “Yieldcos” than in traditional utility stocks. (NYLD and ABY currently pay 2.7% and 2.8% on an annual basis.)
These and other Yieldcos are creating a large pool of low cost capital available to finance alternative energy infrastructure. Demand remains strong: NextEra Energy Partners (NYSE:NEP) rose 38% to $34.61 in the first day of trading on July 3rd. At the initial dividend rate of $0.75 annually, the yield is only 2.2%, below even the parent company NextEra Energy’s (NYSE:NEE) 2.9% yield.
The Yeildcos themselves may have trouble advancing from their current lofty valuations, but the low cost capital they bring is likely to raise the price and of existing alternative energy infrastructure, and make new alternative energy projects easier to finance. While the Yieldcos’ parent companies are the most obvious beneficiaries, all current owners, developers, and suppliers to renewable energy projects are likely to feel its effects. In this list, those include Hannon Armstrong, Capstone Infrastructure, Primary Energy, Ameresco, and Alterra.
It’s entirely possible that Primary Energy’s “strategic negotiations,” discussed above, are with the sponsor of a current or future Yieldco. At Yeildco prices, the stock would be worth US $7 or C$7.46 a share (based on a 4% yield and the current annual dividend of $0.28.)
Disclosure: Long HASI, PFB, CSE, ACCEL, NFI, PRI, AMRC, MIXT, PW, AXY, FVR, PEGI. Short NYLD Calls.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.