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#Debt/Gearing=60.9%
stale
Added 3 years ago

In my recent valuation for NEW I mentioned that the had no debt and had been debt free since listing.  That is incorrect.  They have plenty of debt.  Their gearing at 31-Dec-2020 was 60.9% (Gross Debt / Gross Asset Value).

Slide 20 of their FY2020 full year results presentation (for the 12 months ended 31-Dec-2020) said:

Capital structure and financing

  • External look-through gearing of 60.9%* is above target gearing of 50%
  • Debt is primarily long-term and fixed-rate
  • Key debt metrics (as at 31 December 2020):
    • Weighted average cost of debt = 4.65%
    • Weighted average debt maturity = 6.8 years
    • Weighted average fixed debt term = 16.5 years
    • Fixed rate proportion (10 years) = 96%**
    • Gearing = 60.9%*
    • Gross drawn debt = A$693.3m***

Notes:

  1. (*) Gearing = Gross Debt / Gross Asset Value.
  2. (**) Refers to proportion of debt service costs that are fixed.
  3. (***) US$ values converted to A$ at the 31 December 2020 exchange rate of 1AUD:0.7694USD.

My error in stating that they had no debt was based on Commsec numbers which I believe are wrong due to the stapled security structure where a NEW stapled security comprises a share in New Energy Solar Limited (Company) and a unit in New Energy Solar Fund (Trust). This share and unit must be traded as one NEW stapled security on the Australian Securities Exchange (NEW stapled security). However, Company shares and Trust units each comprise separate assets for Australian capital gains tax purposes.  And one carries all the debt and the other carries none of it. Commsec stats obviously referred to the one without the debt, not the one carrying the debt.  Bottom line is they do have significant debt, and my statement in my valuation for NEW that they do NOT have debt - is wrong.

Further details on their structure can be viewed here:  https://www.newenergysolar.com.au/investor-centre/apportionment

I would also agree with @PeregrineCapital's assesment in their valuation for NEW that the company "...has suffered from poor management, a complex corporate structure and high gearing. As a result the market has very little faith in anything management says."

True, that!  And there are always things going wrong with their assets, which tend to always underperform expectations.  I guess that's why they are trading at such a large discount to their NAV.  Which suggests that the market doesn't trust their NAV either most likely.  The market is probably of the opinion that NEW's assets are likely worth less than what they think they're worth.  I guess we'll get some answers as the sale process for the Australian assets plays out over the next few months.  If they end up selling for less than book value, then that will suggest their book values (asset valuations, carrying values) are not realistic or accurate.  We shall see.  Not without risk, this one, but I like the risk/reward balance in this environment of a global move to much more renewable energy generation.  Even bad companies have the potential to be positively re-rated by the market.

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#Off market buyback
stale
Added 2 years ago

Off Market buyback completed at a price of $0.91 per share. This is a bit higher than I expected (was thinking 0.86-0.87). Well done to all who bought before the buyback and sold into it.

Would look to divest if SP hits $0.90 which would be 10% above my most recent valuation.


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#Winding up
stale
Added one year ago

NEW is close to completing the sale of its US solar plants after which it expects to return its capital to shareholders in 2 tranches and be wound up.

Subject to some US regulatory approvals, the first capital return of $0.82 per share, should be paid this month.

NEW has foreshadowed making a second capital return before the end of 2023. The amount was estimated in August to be $0.16. This seems to be based on net sales proceeds of USD 224M which would convert to about AUD 325M at an exchange rate of 0.69. Converting at the current exchange rate of about 0.65 would result in NEW receiving about AUD 345M; or about an additional AUD 0.06 per share.

What the exchange rate will be when the sale completes is, of course, unknown. NEW entered into a currency hedge in late August which involved a cap of about 0.72. It said at the time that it will benefit from the rate being lower.

It doesn't seem possible for any benefit to be passed on immediately by way of adjusting the amount of the first capital return; as the $0.82 was recently approved by shareholders (along with the asset sale).

While some US regulatory approvals are yet to be received, there doesn't seem to be a reason to think that they won't be. A couple of fund managers have recently lodged substantial shareholder notices for NEW. They presumably have assessed the risk and are comfortable with it.

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#ASX Announcements
stale
Added one year ago

NEW recently announced that:

  1. the sale of its US solar farms had been completed;
  2. the proceeds after loan repayments etc were some $13.6M greater than originally anticipated as a result of exchange rate movements;
  3. the initial capital return of $0.82 per share would be paid on 1 December; and
  4. an estimate of $0.205 per share would be available for further capital return(s).


Shareholders will asked to approve the delisting of NEW in anticipation of its winding up which is expected to be completed by the end of 2023.

NEW closed yesterday at $0.19. This seems rather fully priced given how long the winding up may take, uncertainty about how much more shareholders will ultimately receive and whether and to what extent some of it will be paid out in advance. That said, there is no obvious reason why at least the $13.6M windfall gain could not be paid as soon as the necessary shareholder approval could be obtained (say at the time of seeking approval for the delisting).

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#ASX Announcements
stale
Added one year ago

On the last trading day before Christmas, NEW gave notice of a meeting of its shareholders to approve:

  1. a further capital return of $0.135 (expected to be paid 8 February); and
  2. its delisting (expected last trading day of 27 February).


NEW also indicated that an estimated $0.07 would be returned to shareholders following its winding up in Q3 or Q4 of 2023.

NEW closed at $0.20. It looks fully priced at this level despite the proposed early return of a good portion of the stub equity; but if it can be picked up a tad lower, the return may be reasonable for people on low tax rates.

The risk is with the timing and amount of the final payment. I suspect the $0.07 estimate will prove to be conservative (as there is nothing to gain by raising expectations when the company is to be delisted and wound up). Conversely, the timing may be more problematic given the winding up will involve affairs in the USA. While the circumstances aren’t entirely analogous, I’m mindful that the voluntary winding up of OneMarket Ltd which started in 2019 is still incomplete. Its business was US based.

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Valuation of $0.750
stale
Edited 2 years ago

11/2

A wind up now seems to be on the cards after a poor update. The question is now how far below book value might the net proceeds for the US assets be? This fund is turning out to be a train wreck (just like URF) with value only apparent around current prices. Downgrading my valuation given the uncertainty surrounding sale values and timeline.


31/8/21 Half year reports were pretty unhelpful and just solidify how poorly this thing has been set up and run. You really have to wonder why management would sell assets slightly under book value and incur transaction costs equal to roughly 15% of the book value for those assets as opposed to suspending distributions. The underlying EBITDA figures for last FY represent a yield of about 5.5% of the Gross Asset Value which is crap but not that crap - given operational performance should improve. The restructure is a positive and capital management initiatives will be interesting. Holding my valuation below Update 13/7/21 $15 mil worth of transaction costs for the Australian asset sale mean that the net proceeds were more like 20% below NAV..... it will be interesting to see how the US assets are valued in August. I again reiterate my belief that this needs a free cash flow yield of about 7.5% to be worth considering. Hopefully the simplified corporate structure will make it easier to ascertain how much cash the assets are actually generating. a SP of $0.80 and free cashflow per share of $0.06 gives a yield of 7.5%. Update: 7/6/21 The Australian asset sale results are pretty underwhelming. After all costs it represents somewhere in the vicinity of a 15% discount to the NAV attributed to the assets (not sure what will happen with stamp duty exactly). This is pretty lacklustre. Given the gearing NEW has and the significant costs that are incurred when divesting these assets I'm not entirely convinced that the further sale of assets would justify the current NAV. I'm no longer concerned with reported NAV. I want to be buying this on a yield of at least 7.5% and the distribution needs to covered by free cash flow. I lose faith in the quality of the underlying assets as with every announcement. Downgrading valuation to 85c based on a 7.5% distribution yield (expecting that it will be covered by free cashflow yield. Update: 27/5/21 The unstapling proposal announced last night it a big positive. One of my big reservations about NEW has been the complex structure and trying to determine what's really going on under the hood. I expect another announcement regarding the sale of the Australian assets is imminent. Asking for a 20% discount to NTA. Update: 14/5/21 - Rumoured that bids are due in around 19/5 for the Australian Portfolio. A sale result in line with book value would go a long way to reducing debt and launching capital management initiatives. Still want at least a 20% discount to NTA . I'm an opportunistic buyer at this price. March 2021: Another one of Dixon Advisory's absolute debacles. This has suffered from poor management, a complex corporate structure and high gearing. As a result the market has very little faith in anything management says. Current reported NTA is around $1.20 and they are in the process of divesting their Australian Assets in order to reduce gearing and undertake capital management initiatives. Without getting too forensic I'd say that I believe that they can cover their 6c distributions with positive cashflow once all assets are running properly but that just begs further questions: why on earth are they paying distributions out of anything but positive free cashflow and why do they always seem to have something going wrong with their assets? Based on a 6c annual distribution you'd be getting a yield of around 7.5% which is relatively attractive these days. Will give a valuation at around todays price and keep an eye on this one.

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Valuation of $1.230
stale
Added 3 years ago
12-Apr-2021: New Energy Solar’s weekly estimated unaudited net asset value (NAV) as at 2 April 2021 was A$1.23 per stapled security. I bought some today at $0.79/share, a 35.77% discount to their NAV just 10 days ago. They own solar farms in Australia and the USA and they have just completed a strategic review and have decided to sell one of their USA assets and all of their Australian assets, with the proceeds of the Australian asset sales being used for capital management including a share buyback. They will then ONLY own solar farms in the USA, making them a tasty takeover target for a USA company wanting to position themselves to capitalise on the new US Administration's positive view on renewable energy generation. Back here in Australia, we have seen Infigen get taken out last year by Spanish giant Iberdrola, then Tilt Renewables (TLT) agreed to a Scheme Implementation Deed in Mid-March (last month) to effectively be taken over by Powering Australian Renewables (PowAR) and Mercury NZ Limited for an all-cash consideration of NZ$7.80 per share or NZ$2.9 billion. AGL has a 20% interest in PowAR and will contribute $A341 million to fund its portion of PowAR’s acquisition of Tilt’s Australian business. Another company I own shares in, Infratil (IFT) also received a takeover offer a couple of months ago (that was unsuccessful) from AustralianSuper. IFT owned a large chunk of TLT at the time as well as interests in other renewable energy generation businesses. It's a sector where there's a lot of M&A lately. It's also a sector that have a strong tailwind of governments having to move to renewable energy generation, which will include legislating targets and providing appropriate incentives to help them meet those targets. There is also the small matter of saving the planet so that future generations can still live on it, which will include reducing greenhouse gas emmissions and coal-fired power stations are one of the largest contributors to that problem, so alternative sources of energy production have to be commercially viable and profitable so that public companies will want to build and run those assets. Nuclear is an option, but still not a very favourable one with many, so wind, solar, hydro, pumped hydro, wave and other renewable energy production is going to become more and more popular and profitable to be involved in. The technology is improving. The costs are reducing. And the government incentives are increasing. While it has been a difficult area in which to make money in the past, that is changing and it's going to be a lot easier to make money in renewable energy in the future I feel. However, you have to choose your investments carefully and do the research. I have looked at about 8 companies over the weekend and today I have bought shares in two of them, being Genex Power (GNX) (at $0.2025) and New Energy Solar (NEW) (at $0.79). GNX has a series of different renewable energy assets (solar, wind and pumped hydro) in various stages of development (including two solar farms that are already operational) along the east coast of Australia, while NEW will soon be simply a portfolio of solar farms in the USA (once they sell Beryl and Manildra in New South Wales). I've also had a good look at Meridian Energy (MEZ) who are mostly into Hydro in NZ, but also wind farms in NZ and Australia. MEZ however also do electricity retailing, so are a little like the AGL of NZ, and are losing their largest customer NZAS, owned by RIO, being a large NZ Aluminium smelter. They've managed to get NZAS to sign a new deal to extend the smelter life to the end 2024 or 2025 (can't remember which) but at a greatly reduced electricity price which MEZ described in a conference call transcript as non-commercial on an ongoing basis, so they have no intention of extending that agreement at those prices. This was agreed to by both parties as (a) RIO can make good money at NZAS at the new price, and (b) MEZ has time to find ways to mitigate the huge hole in their revenue that losing NZAS will result in. MEZ has been significantly sold down on this news and the only broker recommendation I can find on them is a strong sell, which makes some sense as they are in a tough spot. The Electricity market in NZ is essentially stagnant at this point also. It is either not growing or it is shrinking. When the move to electric vehicles really takes off that might change, but that's not for a couple of years yet. NEW have also had some bad luck over the past year with fire damaging some of their solar farm assets in California, which they are claiming insurance for (business disruption) and slowly repairing, and also with the exchange rate movement making their US assets worth quite a lot less in A$s. They have started publishing their NAV every week, which is to try to highlight the BIG difference between their SP and their NAV. Obviously their NAV is based on the value of their solar farms and they have written that value down in the past year, as well as having it shrink further due to adverse exchange rate movements between the US$ and A$. Their assets are in the USA but they are an Australian domiciled company that report in Australian dollars. From their 21-Feb-2021 Results Presentation for FY2020 (note: their Financial Year ends on Dec 31) - "Focus for FY2021: NEW is working to complete the sale of its Australian assets and to focus the business on its US portfolio of assets and the optimisation of their performance. The US market is experiencing strong growth in clean energy investment with the new US federal administration committed to supporting the energy transition. The re-positioning of the business as a result of the strategic review offers significant opportunity to address NEW’s persistent security price discount to net asset value." In 2018 NEW actually made money and had a 14.4% ROE and a 14% ROC. They made a small loss in 2019 and quite a big one in 2020. I did previously say here that they were debt free. That was based on Commsec data that showed zero debt - but that was due to their corporate structure (stapled security structure) - see my debt/gearing straw for more details on their structure and their debt. Their gearing (gross debt divided by gross asset value) was 60.9% at 31-Dec-2020. The debt actually makes sense with these sort of companies that own a lot of infrastructure, they are asset-heavy, and they are income-producing assets, and the income pays off the debt. That's the business model. In NEW's case, 96% of their debt service costs are fixed and their weighted average cost of debt is 4.65% p.a., with a weighted average debt maturity of 6.8 years. Their weighted average fixed debt term = 16.5 years. Their gross drawn debt at 31-Dec-2020 was A$693.3 million (converted from US$ to A$ on the basis of an exchange rate of 1AUD:0.7694USD). That's a lot, but they are saying their gross assets are worth A$1.14 billion (A$1,138.5 million) - and their entire market cap at 80c/share is only A$284.1m, but then... they are trading at a 35% discount to their net asset value (NAV). Their assets have performed poorly most of the time, and they always seem to have things going wrong with them, including fires, lightning strikes, and less sunlight than anticipated apparently, like too many cloudy days perhaps, and they have been poorly managed, and the market doesn't trust their management, or the valuation (the NAV), hence the SP trading at a significant discount to the NAV, and their corporate structure is complicated. However, not super complicated. RFF (Rural Funds, which I've held and made plenty of money on in the past) has the exact same stapled security structure, so the structure is not their biggest issue, in my opinion. It makes some of their metrics look strange at times, like that they have no debt according to Commsec - when they clearly do have plenty of debt. However, it's not a deal-breaker IMO. I'm viewing them now as a value play. Over the past couple of years, their share price has dropped from $1.46 to $0.79, with their all-time low SP being set just a few weeks back - in mid-March - at $0.705. That seems to be their bottom, as they have moved steadily up from there, albeit off a very low base. While they are clearly not the highest quality company out there, and their management has a poor track record to date, NEW do look like a reasonable value play here (at this point in time) with some strong tailwinds, so I'm now a NEW shareholder.
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