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.