by Aurelien Windenberger
I’ve been a fan of Tom Konrad’s annual renewable model portfolio for years, so I’m happy to be able to assist Tom with some of his monthly updates.
After two chilly months to start off 2016, the outlook turned considerably warmer in March, both for the market and for clean energy stocks. The Russell 2000 (IWM) jumped 8% for the month, as market participants took to the “risk-on trade” following Fed Chairwoman Yellin’s dovish commentary. Clean energy stocks did even better, buoyed by a reversal in the broader energy sector.
Tom’s Ten Clean Energy Stocks for 2016 model portfolio pared its losses from Jan/Feb, and is now down only 3.9% for the year, almost exactly the same as its benchmark (see below), which is down 3.8%. The seven income stocks were down 2.3% on average, slightly below the income benchmark, the Global X YieldCo ETF (NASDAQ:YLCO.) The three growth stocks are now down 7.6%, and performed substantially better than their benchmark, the Powershares/WilderHill Clean Energy ETF (NYSEARCA:PBW), in March. The overall benchmark mentioned above is a 70/30 blend of the income and growth benchmarks.
The Green Global Equity Income Portfolio, a seed account investing in green income stocks which is managed by Tom, was only up 6.7% during March. However, it has still outperformed all of the other model portfolios, climbing a total of 1.7% year to date.
The chart above gives detailed performance for the individual stocks. Significant news driving individual stocks is discussed below.
Pattern Energy Group (NASD:PEGI)
12/31/15 Price: $20.91. Dec 31st Forward Annual Dividend: $1.488 (7.1%). Beta: 1.22. Low Target: $18. High Target: $35.
3/31/16 Price: $19.07. YTD Dividend: $0.381 Forward Annual Dividend:$1.524 (8.0%) YTD Total Return: -7.0%
After two surprisingly poor months to start 2016, Pattern Energy’s was up 15% in March. The company’s strong fourth quarter results and dividend ex-date in late March were certainly catalysts for the ascent. As mentioned by Tom last month, Pattern Energy’s CAFD (Cash Available for Distribution) is expected to increase to about $2.06/share over the next couple years.
Assuming a 7% yield puts the price up near $30, which might be a conservative target once MLP (Master Limited Partnership) investors learn about Pattern’s MLP-like yields and better risk profile. Anyone interested in learning more about Pattern Energy should read Kevin Neumaier’s recent articles on the company and dig into Tom’s article archive.
Enviva Partners, LP (NYSE:EVA)
12/31/15 Price: $18.15. Dec 31st Forward Annual Dividend: $1.76 (9.7%). Low Target: $13. High Target: $26.
3/31/16 Price: $21.72. YTD Dividend: $0.46 Forward Annual Dividend: $1.84 (8.5%) YTD Total Return: 22.5%
Wood pellet focused MLP and Yieldco Enviva Partners continued its excellent performance in 2016, jumping another 12% during March. Enviva is in an enviable position at the moment, given that it is producing a fuel source that hasn’t been as effected by the general decline in energy prices. As noted last month, the company provided new guidance for total distributions in 2016 of at least $2.10, 19% over its annual distribution rate at the end of 2015.
However, there are some concerns that the EU could take a less positive stance towards wood pellets in the future. For more information, I suggest readers review the comments on this recent article.
Green Plains Partners, LP (NYSE:GPP)
12/31/15 Price: $16.25. Dec 31st Forward Annual Dividend: $1.60 (9.8%). Low Target: $12. High Target: $22.
3/31/16 Price: $13.45. YTD Dividend: $0.4025. Forward Annual Dividend: $1.61 (12.0%) YTD Total Return: -14.6%
Like Enviva, Green Plains is a new MLP and Yieldco. The company’s contracts with its parent, Green Plains (GPRE), also insulate it from the general level of economic activity and commodity markets. However, this insulation is only as good as its parent’s solvency. While GPRE has a strong balance sheet, its ethanol operations are exposed to commodity markets, especially the oil price.
As expected, GPP recovered along with the broader energy sector during March, although the move up was weak given the lack of any positive company specific news.
NRG Yield, A shares (NYSE:NYLD/A)
12/31/15 Price: $13.91. Dec 31st Forward Annual Dividend: $0.86 (6.2%). Beta: 1.02. Low Target: $11. High Target: $25.
3/31/16 Price: $13.57. YTD Dividend: $0.225. Forward Annual Dividend: $0.90 (6.6%) YTD Total Return: -0.7%
There was no significant news at Yieldco NRG Yield (NYLD and NYLD/A) during March, although the company did announce that their new 20MW solar power facility was completed in Southern California. The stock was up a solid 9% for the month and expects to increase their annual dividend to $1.00 per share by the end of 2016.
Terraform Global (NASD: GLBL)
12/31/15 Price: $5.59. Dec 31st Forward Annual Dividend: $1.10 (19.7%). Beta: 1.22. Low Target: $4. High Target: $15.
3/31/16 Price: $2.38. YTD Dividend: $.275. Forward Annual Dividend: $1.10 (46.2%). YTD Total Return: -52.5%
Terraform Global’s stock had an extremely volatile month due to bankruptcy concerns at its sponsor and controlling shareholder, SunEdison (NYSE:SUNE). While the company did pay their 4th quarter dividend as expected in mid-March, they were not able to release their financials due to accounting issues at SunEdison.
Global also released an 8-K on March 29th confirming that SunEdison is likely to file f
or bankruptcy protection, a move which would have material negative impacts on Global. SunEdison currently owes Global about 90MW of power plants from their formation agreements, as well as 425MW of Indian solar aseets for which Global pre-paid $231mil in December 2015. The delivery of some or even all of these assets is now uncertain.
Global also has change of control covenants in certain of their bonds and project level debt which could force the company to pre-pay the debts. On the plus side, the company still has an estimated $750mil in unrestricted cash, along with 814MW of operating plants.
Both Tom and I believe that the company is largely undervalued at current prices. Tom notes that, “even the current bag of assets should produce the cash flow to support a $0.40 dividend, way more than is needed to justify a $2.50 stock price.” It was also good to see that former CEO Brian Wuebbels resigned this week, and that the board of the directors expressly noted that they take their fiduciary responsibilities to shareholders very seriously and remain committed to acting in their best interests.
Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/15 Price: $18.92. Dec 31st Forward Annual Dividend: $1.20 (6.3%). Beta: 1.22. Low Target: $17. High Target: $27.
3/31/16 Price: $19.22. YTD Dividend: $.30. Forward Annual Dividend: $1.24 (6.3%). YTD Total Return: 3.2%
Clean energy financier and REIT Hannon Armstrong delivered a solid month, performing in-line with the benchmark for the month. As highlighted by Tom many times over the past couple years, the company has an excellent business model that focuses on consistent growth with less risk than most of the Yieldco’s in the space.
HASI generally raises its dividend in the fourth quarter. The above guidance implies that the 4th quarter dividend will be between $0.34 and $0.36, and the dividend will be raised another 4 to 7 cents in 2017.
TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37. Dec 31st Forward Annual Dividend: C$0.84 (8.1%). Low Target: C$10. High Target: C$15.
3/31/16 Price: C$12.65. YTD Dividend: C$0.22 Forward Annual Dividend: C$0.88 (7.0%) YTD Total Return (US$): 32.7%
TransAlta Renewables continued its excellent performance in 2016, climbing another 18% in March. The stock was boosted in part by continued gains in the Canadian dollar, which was up 4.2% in March. As noted last month, the company recently completed a drop-down of a cogeneration plant, a wind farm, and a hydro facility in Canada from its parent, TransAlta Corp. (NYSE:TAC).
Renewable Energy Group (NASD:REGI)
12/31/15 Price: $9.29. Annual Dividend: $0. Beta: 1.01. Low Target: $7. High Target: $25.
3/31/16 Price: $9.44. YTD Total Return: 1.6%
Advanced biofuel producer Renewable Energy Group saw its stock soar 29% during March, as the company reported better than expected annual results on March 8th. Thanks to the retroactive reinstatement of the bio-diesel tax credit for 2015, the company reported revenues and earnings which were substantially higher than expected by the market. REGI also announced a stock and/or convertible bond repurchase program of up to $50mil, which has likely provided additional support for the stock.
MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Forward Annual Dividend: R0.08 (2.9%). Beta: -0.13. Low Target: $4. High Target: $15.
3/31/16 Price: $3.94/R2.36. YTD Dividend: R0.02/$0.12 Forward Annual Dividend: R0.08 (3.2%) YTD Total Return: -5.8%
Software as a service fleet management provider MiX Telematics finally saw its stock climb again in March, as it was up 13.5%. The stock was also helped by a 7.5% improvement in the South African Rand. The company also announced two new offerings in North America targeting the oil & gas industry. The 2nd in particular highlighted the expected monthly savings to companies using MiX’s fleet solutions, a key consideration given the cost cutting required in the industry today. In addition, MiX has $1.85 worth of cash per share, and a P/E ratio of just over 8.
Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25. Annual Dividend: $0. Beta: 1.1. Low Target: $5. High Target: $15.
3/31/16 Price: $4.77. YTD Total Return: -18.6%
Energy service contractor Ameresco was the only pick aside from Terraform Global to trade down during March. The company reported so-so results in early March, with no news since, so the stock hasn’t seen any interest. On the plus side, insiders continued to purchase more company stock.
Last month, Tom highlighted the fact that he was seeing great values across the renewable energy space, and urged investors with cash to buy. So far, it appears that the call was well timed. Even so, most of the stocks remain strong values, particularly the dividend payers. Given their relatively depressed share prices and projections for increasing dividends, total returns of 20-30% annually over the next couple years are not out of the question.
- Aurelien: Long: HASI, MIXT, GLBL.
- Tom: Long HASI, AMRC, MIXT,, RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL.
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.