Tom Konrad Ph.D., CFA
In the two months since my last “monthly” update, clean energy stocks fell precipitously in September and then recovered most of those losses in October, although not for the year.
Income focused Yieldcos have been particularly badly hit, but my income heavy Ten Clean Energy Stocks for 2015 model portfolio has done quite well in spite of this. I attribute this resilience to my emphasis on current dividend income, rather than the dividend plus double-digit growth that many Yieldcos were promising before the collapse in their stock prices rendered the growth impossible.
It now seems increasingly likely that we have seen the bottom for Yieldcos. I first shared this opinion in an interview on October 14th, and followed it up in more detail in an article last week. Clean energy stocks and the market in general seem to be following a similar, if less drastic pattern.
By the numbers, the model portfolio was up 11.0% for October, and 3.0% for the year to October 31st. Its benchmark (a 60/40 blend of YLCO and PBW) was up 10.3% for the month but is still down 23.9% for the year to date.
The six stock income subportfolio was up 5.8% in October and 12.5% year to date, compared to the Global X YieldCo Index ETF (NASD:YLCO), which recovered 10.5% in October, but remains down 29.5% year to date. The Green Global Equity Income Portfolio which I manage gained 5.3% for the month and is up 6.6% for the year.
The four stock value and growth portfolio had a stellar month, up 18.9% in October but still down 11.3% year to date. However, this portfolio is now outperforming its benchmark, the Powershares Wilderhill Clean Energy ETF (NASD: PBW), which gained 9.9% for the month but is down 15.4% year to date.
Individual Stock Returns and Highlights
The chart below (click for larger version) gives details of individual stock performance, followed by a discussion of the month’s news for each stock.
The low and high targets given below are my estimates of the range within which I expected each stock to finish 2015 when I compiled the list at the end of 2014.
1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23. Annual Dividend: $1.04. Beta: 0.81. Low Target: $13.50. High Target: $17.
10/31/15 Price: $18.01. YTD Dividend: $0.78 YTD Total Return: 32.0%.
Alone among Yieldcos, sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong retains access to the equity markets, a fact which it demonstrated with a secondary offering of 5 million shares at a price of $18. The secondary offering and decline of the Yieldco sector knocked the price down a bit (if not nearly as much as other Yieldcos.) As I wrote in the June 1st update, I was taking some profits when HASI was over $20, but I am holding on to my still very large position at current prices.
Although the secondary offering knocked the price down, the offering was not dilutive to current shareholders when viewed through the lens of invested capital per share. As I mentioned in a comment on Seeking Alpha last week, Hannon Armstrong had approximately $11.87 of capital to invest per share before the offering, and $12.57 of capital per share to invest after the offering. So the offering should increase HASI’s capacity to pay per share dividends by approximately 6%. At the end of last year, HASI declared a $0.26 per share quarterly dividend generated by approximately $10.91 of invested capital. If the company is as effective investing the new capital from the two secondary offerings since then, it should be able to declare a quarterly dividend of $0.30 per share for the coming year.
At the current price of $18.01, that translates to a 6.7% annual dividend yield.
2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90. Annual Dividend: $0.72. Beta: 1.54. Low Target: $10. High Target: $30.
10/31/15 Price: $15.39. YTD Dividend: $0.36 YTD Total Return: 5.7%.
International manufacturer of electrical and fiber optic cable General Cable Corp. reported that MM Logistics (MML) had failed to close on the second part of its purchase of BGC’s Asian operations. The first step netted the company $88 million for BGC’s Thai operations. General Cable believes that MML did not have the right to terminate the Purchase Agreement under the contract, and is “considering all of its options against MML under the Purchase Agreement, at law and in equity.”
Despite this news, the stock rallied strongly in October, perhaps because it had simply become extremely undervalued at the end of September.
3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48. Annual Dividend: C$0.84. Low Target: C$10. High Target: C$15.
10/31/15 Price: C$10.10. YTD Dividend: C$0.671 YTD Total C$ Return: -6.2%. YTD Total US$ Return: -16.8%.
Yieldco TransAlta Renewables reported third quarter results in line with the company’s previous guidance. Weak winds in Eastern Canada were offset by strong hydropower and wind production in the west. Despite this, the stock has continued its slow decline, perhaps because other Yieldcos (which have fallen much further) have become relatively more attractive.
4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. Annual Dividend C$0.30. Low Target: C$3. High Target: C$5.
10/31/15 Price: C$3.20. YTD Dividend: C$0.225 YTD Total C$ Return: 7.0%. YTD Total US$ Return: -5.1%.
Canadian power producer and developer (Yieldco) Capstone Infrastructure received a somewha
t favorable binding determination for its joint venture subsidiary, Bristol Water. The determination partially reverses the former (very unfavorable) ruling by its regulator, OfWat. The company again committed to maintaining its current dividend and reaffirmed its goal of bringing its payout ratio in line with its long term target of 70% to 80%.
New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/31/2014 Price: C$13.48. Annual Dividend: C$0.62. Low Target: C$10. High Target: C$20.
10/31/15 Price: C$18.96. YTD Dividend: C$0.505 YTD Total C$ Return: 44.4%. YTD Total US$ Return: 28.1%.
Leading North American bus manufacturer New Flyer again announced strong orders and backlog for the third quarter, and received 162 new orders for every 100 buses delivered over the last twelve months. The backlog is now sufficient for the company to maintain its current production levels through the end of 2016. Multiple analysts increased their price targets for the stock in response.
Although I still consider the stock attractive, I trimmed my position (most of which was acquired in 2012 at a fraction of the current price) over the last two months to free up capital to invest in what I believe to be some very attractively priced Yieldcos such as Terraform Global (GLBL), 8point3 (CAFD) and Abengoa Yield (ABY).
6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. Annual Dividend: €0.61. Low Target: €12. High Target: €20.
10/31/15 Price: €18.96. YTD Dividend: €0.61 YTD Total € Return: 43.9%. YTD Total US$ Return: 30.9%.
European bicycle manufacturer Accell Group continues to benefit from its leadership position in the rapidly growing electric bike market. Like New Flyer, I continue to like the stock and its future growth prospects, but I took some gains to reinvest in undervalued Yieldcos.
7. Future Fuel Corp. (NYSE:FF)
12/31/2014 Price: $13.02. Annual Dividend: $0.24. Beta 0.36. Low Target: $10. High Target: $20.
10/31/15 Price: $15.41 YTD Dividend: $0.18. YTD Total Return: 19.7%.
Biodiesel and specialty chemicals producer FutureFuel renegotiated its previously terminated contract to supply a bleach activator to Proctor and Gamble. Analysts at Roth Capital believe that the new contract will allow FutureFuel to sell the formerly proprietary product to third parties, and believe that such sales will offset the decline in sales to P&G. The stock jumped from around $10 when the deal was announced to above $15 today.
8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35. Annual Dividend: $0. Beta: 0.52. Low Target: $5. High Target: $20.
10/31/15 Price: $4.47. YTD Total Return: -46.5%.
Solar and rail Real Estate Investment Trust Power REIT has released little news as it awaits a final ruling in its civil case with Norfolk Southern and Wheeling & Lake Erie railways. Since the case has already gone badly against PW, I don’t expect much further fallout.
9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00. Annual Dividend: $0. Beta: 1.36. Low Target: $6. High Target: $16.
10/31/15 Price: $6.48. YTD Total Return: -7.4%.
Energy service contractors Ameresco has been recovering from its previous low at the end of August, but I feel it remains significantly undervalued. The company continues to sign large contracts, and has recently received upgrades from analysts at Oppenheimer and Northland Securities.
10. MiX Telematics Limited (NASD:MIXT).
12/31/2014 Price: $6.50. Annual Dividend: ZAR 0.08 or $0.15 Beta: 0.78. Low Target: $5. High Target: $20.
10/31/15 Price: $5.63. YTD Dividend: $0.186 YTD Total South African Rand Return: 6.5%. YTD Total US$ Return: -11.1%.
Vehicle and fleet management software-as-a-service provider MiX Telematics signed a contract to provide its fleet management and safety solutions to Halliburton’s fleet of 15,000 vehicles in North America, a sign that the global company’s two year push into the North American market is starting to bear fruit. I continue to believe that MiX is massively undervalued on most metrics, especially in comparison to its North American competitors like Fleetmatics (FLTX.)
Clean energy stocks and especially Yieldcos seem to be recovering from a bottom at the end of September. Most Yieldcos remain at very attractive valuations, and so I expect their slow recovery to continue, especially since the prospects of more than token rate hikes from monetary authorities seem to be fading. The weaker economic prospects which have been delaying rate hikes may take the wind out of the rally of many stocks, but income stocks such as Yieldcos and the first six on this list should benefit from continued low interest rates.
Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, PW-PA, FF, BGC, RNW/TRSWF. I am the manager of the GGEIP strategy.
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.
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