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Jonathan Chang
j.chang@queensu.ca, Queens University
September 2015
BUSINESS DESCRIPTION
Chairman/CEO of
parent since 06.
Previously, CEO at
GE Capital div. &
prior mgmt.
consultant. Harvard
MBA.
MANAGEMENT TEAM
2.3x
With NEE since
01. Past executive
and partner in
mgmt. consulting
and investment
mgmt. Eng & MSc
from MIT.
TERP
ABY
2.3x
PEGI
2.3x Average
(NEP ~3x less than average)
0.7x
0.8x
NYLD.A
NEP
Ultimately, despite short-term decline, high quality LT contracted cash flow will attract capital again to space once
investors regain confidence. NEP as best-in-class YieldCo according to KeyBanc/Macquarie.
Source: Company Filings, Company Website, Capital IQ, KeyBanc, Equity Research, Capital IQ
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MACRO-DRIVEN SELL-OFF
$110
Crude Oil
HIDDEN VALUE
50
NEP
$90
40
$70
Macro-driven
Selloff
$50
$30
Jun26-'14
30
20
Sep26-'14
Dec26-'14
Mar26-'15
Jun26-'15
50% drawdown from June 1st provides attractive entry point. Move was
mostly macro-driven and doesnt reflect material change at firm level.
EV / EBITDA
24x
Peer Median
Peer Mean
NextEra Energy Partners, LP
22x
12x
13x 13x
7x
10x 10x
4x
LTM
15E
16E
LONG-TERM STABILITY
NEPs structural advantages allow for stability in its LT equity contribution. In NT, Mr. Market is irrationally
evaluating NEP by failing to acknowledge earnings power, accretive acquisitions, and a macro-based overreaction.
Source: Company Filings, Equity Research, Spy Hill Research, KeyBanc, Seeking Alpha, Bloomberg, Capital IQ
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13.5%
Bear
Bull
2015E
2016E
$1.23
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
Bear
Base
Bull
$14.73
$15.82
$17.01
$1.40
$1.58
$1.80
$2.04
$2.32
$2.63
$2.98
$3.39
$3.84
12.0%
$1.38
$1.54
$1.73
$1.94
$2.17
$2.43
$2.72
$3.05
$3.41
Terminal Value
$58.85
$66.33
$74.62
15.0%
$1.41
$1.63
$1.87
$2.15
$2.47
$2.85
$3.27
$3.76
$4.33
PV of Terminal Value
$32.86
$37.04
$41.67
NPV Sum
$47.59
$52.86
$58.67
Base
$15.82
$1.32
$1.41
$1.51
$1.62
$1.73
$1.85
$1.98
$2.13
$2.28
$23.32
$23.32
$23.32
Bear
$14.73
$1.30
$1.37
$1.45
$1.53
$1.62
$1.71
$1.81
$1.91
$2.02
104.1%
126.7%
151.6%
Bull
$17.01
$1.33
$1.45
$1.57
$1.70
$1.85
$2.01
$2.18
$2.36
$2.56
26.8%
31.4%
36.0%
Market
Cap
1997.4
1971.3
1761.6
1732.4
267.8
Overall Mean
NextEra Energy Partners, LP
769.5
3,082.5
34.9
65.7
77.0
LTM
10.4x
15.1x
16.7x
16.5x
86.4x
TEV/Revenue
CY+1
8.2x
10.7x
10.0x
12.7x
37.4x
CY+2
6.6x
8.6x
5.5x
9.1x
10.3x
LTM
14.4x
21.2x
26.9x
27.1x
NM
TEV/EBITDA
CY+1
10.3x
13.1x
12.4x
17.3x
NM
CY+2
8.1x
10.3x
7.3x
11.7x
10.9x
LTM
90.1x
67.2x
NM
NM
NM
P/E
CY+1
27.2x
13.5x
75.6x
NM
128.9x
CY+2
14.6x
10.8x
21.8x
38.6x
81.0x
32.1x
16.6x
8.0x
22.4x
13.3x
9.7x
78.7x
61.3x
33.4x
9.5x
6.2x
3.7x
12.4x
7.3x
4.2x
NM
26.9x
16.9x
Bear
4.2 x
$710.00
$22.83
Base
5.8 x
$710.00
$60.39
Bull
7.3 x
$710.00
$97.95
$23.32
-2.1%
-0.7%
$23.32
159.0%
37.3%
$23.32
320.0%
61.3%
Source: NEP 10k Filing, Capital IQ, Equity Research, NEP 2Q 2015 Release
For the full year 2015, NextEra Energy Partners now expects the portfolio
to grow to support a distribution level at an annualized rate of $1.23 per
unit by the end of 2015. NextEra Energy Partners' 2015 expectations
remain unchanged for adjusted EBITDA of $400 million to $440. After
2015, the partnership expects 12 to 15 percent per year growth in limitedpartner distributions for at least the next five years. NextEra Energy
Partners expects 2016 adjusted EBITDA of $710 million to $760 million.
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$60
DCF
$70
$54
DDM
$48
$68
$59
EV / Sales
$98
EV / EBITDA
$103
$104
$20
$40
$60
$80
$100
$112
$120
Bear case applied 2016E low end (710m) EBITDA to 5.8x EV Exit Multiple
Bull case applied 2016E high end (760m) EBITDA to 5.8x EV Exit Multiple
Bear case applied 2019E EV Exit multiple to 4.0x EBITDA with 10.02% WACC
Bull case applied 2019E EV Exit multiple to 4.5x EBITDA with 9.52% WACC
Bear case applied low end of management guidance of 12% distribution growth
Bull case applied high end of management guidance of 15% distribution growth
$140
INVESTMENT SUMMARY
$61.16
$60.39
$52.86
$23.32
126.7%
31.4%
3.6%
34.9%
$47
$40
$38
$33
$31
BMO
Credit Suisse
KeyBanc
Deutsche
UBS
Macquarie
NEPs strong cash-flows, and stable dividend earn it a great business model while its relative discount and irrational sell-off provides a
compelling entry-point for an underpriced YieldCo.
Source: Bloomberg, Business Insider, Goldman Sachs, TOWR 10k Filing
Please see Appendix for further valuation models.
APPENDIX
NextEra Energy Partners (NYSE:NEP)
Volume
Adj Close
$50
1.8m
1.6m
1.4m
$45
1.2m
$40
1.0m
44% Drawdown
0.6m
$30
0.4m
$25
0.2m
Dec12-'14
Mar12-'15
Jun12-'15
0.0m
Sep12-'15
Volume
0.75m
$80
$70
58% Drawdown
$60
0.50m
$50
0.25m
$40
Dec9-'14
Mar9-'15
Jun9-'15
1.00m
$90
$30
Sep9-'14
0.8m
$35
$20
Sep12-'14
0.00m
Sep9-'15
EARNINGS CALLS
Unacknowledged growth will be recognized once they are
represented in earnings.
Purchase of
Jul-'15
Aug-'15
-20%
-40%
-60%
Source: Bloomberg, Energy Finance Report, Renewable Energy World, Bloomberg, OTC Outlook, Equity Research Reports
NEP
Sep-'15
100
99
98
30
28
26
97
Aug13-'15
24
Aug20-'15
Aug27-'15
OPERATIONAL RISK
Major equipment failures or unplanned outages could present
downside risk not taken into account.
Sep3-'15
Sep10-'15
Sep17-'15
DEBT PROFILE
Canyon Wind Term Loan
Mountain Praire Senior Secured
Genesis Project Note
Genesis Bank Loan
Genesis Senior Secured
St. Clair Senior Secured
Trillium Senior Secured
Bluewater Term Loan
32
NEP
Maturity
2030
2030
2038
2019
2038
2031
2033
2032
Rate (bps)
LIBOR + 225-325
656
412.5
LIBOR + 120-130
560
488.1
580.3
200-325
14A Value
$211
$282
$402
$113
$280
$135
$267
$146
$83
$84
2016
2017
$74
$77
$1,440
2018
2019
Thereafter
ACQUISITION FAILURE
Failure for Jericho asset purchase or NET midstream deal could have
negative implications. Linked with failure to meet EBITDA expectations.
2015
Many risks have been factored into stock price from pessimistic fears.
Downside case is limited due to recent drop in stock price and wide margin of safety.
Source: Bloomberg, Energy Finance Report, Renewable Energy World, Bloomberg, Equity Research Reports
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Appendix IV:
Discounted Cash Flow Model
PROJECTED CASH FLOW AND IMPLIED SHARE PRICE
Total Revenue
Annual Growth
Cost of Revenue
EBITDA
Less: Depreciation and Amortization
EBIT
Margin
Less: Income Taxes
23.2%
Unlevered Net Income
Plus: Depreciation and Amortization
Less: Capital Expenditure
Less: Additions to Intangibles
Less: Increase in Working Capital
Unlevered Free Cash Flow
Annual Growth
2012
93.0
NA
16.0
72.0
23.0
49.0
52.7%
(11.4)
37.6
23.0
(710.0)
0.0
(4.0)
-653.4
NA
2013
142.0
52.7%
26.0
104.0
38.0
66.0
46.5%
(15.3)
50.7
38.0
(647.0)
0.0
21.0
-537.3
(17.8%)
2014
301.0
112.0%
47.0
237.0
75.0
162.0
53.8%
(37.6)
124.4
75.0
(130.0)
0.0
22.0
91.4
(117.0%)
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2015E
498.9
65.7%
77.9
392.8
142.5
250.3
50.2%
(58.1)
192.2
142.5
(215.5)
0.0
29.6
148.9
62.9%
2016E
835.0
67.4%
130.4
657.5
269.1
388.4
46.5%
(90.1)
298.3
269.1
(360.6)
0.0
49.5
256.3
72.1%
2017E
1,046.5
25.3%
163.4
824.0
375.5
448.5
42.9%
(104.1)
344.5
375.5
(452.0)
0.0
62.1
330.1
28.8%
2018E
1,203.5
15.0%
187.9
947.6
475.8
471.8
39.2%
(109.5)
362.3
475.8
(519.8)
0.0
71.4
389.8
18.1%
2019E
1,323.9
10.0%
206.7
1,042.4
571.8
470.6
35.5%
(109.2)
361.4
571.8
(571.8)
0.0
78.5
440.0
12.9%
CAGR
2015-2019
27.6%
27.6%
41.5%
27.6%
27.6%
31.1%
42.7
1,169.6
2,935.0
4,147.2
(2,294.0)
0.0
(119.0)
100.0
1,834.2
Shares Outstanding
Implied Per Share Value
Current Price
Premium to Current Price
3-YR Implied CAGR (Annualized Return)
29.3
62.62
23.32
168.5%
39.0%
Source: NEP 10k Filing, Capital IQ, Equity Research, Management Guidance
NYSE:NEP
WACC
9.27%
9.52%
9.77%
10.02%
10.27%
3.7x
51.40
50.31
49.23
48.17
47.11
4.7x
75.73
74.40
73.09
71.79
70.51
10 |
EXCERPT
DEUTSCHE
CREDIT SUISSE
MACQUARIE
KEYBANC
Recent sell-off in the yieldco space creates a temporary set-back to some of the EM yieldco
stories, but project economics in international markets are attractive enough to support the longer
term growth requirements of this sector, in our view.
Overdone Reaction; We Like NEP. Our take: NEP shares got caught in the ugly cross hairs of an
investor base regularly asking for growth through acquisition to take advantage of the attractive
cost of capital and the fatigue of (and now almost Pavlovian response to) selling Yield Cos ahead
of future equity raises. We 'get' the playbook but think the facts are structurally better than the
market response.
We continue to see NEP as the highest quality yieldco in the US, and believe its management
has many tools to navigate through current rough times. NEP has laid out a clear and logical plan
to deal with the current dislocation in yieldco equity markets
UBS
Despite the accretive acquisition and guidance increase, shares slumped 7.7% Monday which
we attribute primarily to the general YieldCo market weakness where all names looking towards
the tapped-out capital markets have been punished.
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