The newest Yieldco is Terraform Global (GLBL), which went public at the start of August. At the IPO, Terraform Global had a net tangible book value of $9.47 per share, compared to a $15 IPO price. At the recent price of $7.50, GLBL is trading at a 21% discount to net tangible assets, or more than a fifth less than the recent purchase price of solar farms it owns. In other words, investors seem to be assuming that any future acquisitions will fail to create (or potentially destroy) value for current shareholders, and that GLBL significantly overpaid for its current assets.
Terraform Global seems priced for nearly everything to go wrong. Even assuming that everything does go wrong, I'm happy holding the stock at $7.50 and collecting the $1.10 (15%) annual dividend.
8point3 Energy Partners (CAFD) went public in June with a net tangible book value of $5.99 per share, compared to a $21 IPO price. The reason for this low tangible book value was because its sponsors First Solar (FSLR) and Sunpower (SPWR) contributed solar farms at cost. The actual value of those farms would be significantly higher if sold to unrelated parties.
Tangible book value is not particularly useful for valuing 8point3's assets, but my colleague Jan Schalkwijk, CFA of JPS Global Investments has done a discounted cash flow analysis of 8point3 under the assumption of absolutely no revenue growth after 2026, and his estimates of nearer term revenue growth without the addition of new assets before that date. At a 7% discount rate (which seems appropriate given the low risk of 8point3's contracted cash flows, he arrived at a value per share of $12.99. In other words, at the recent price of $13, the market is placing no value on 8point3's potential future acquisitions, or the chance that this high quality Yieldco will recover from the current sector downturn.
So there is plenty of potential upside in CAFD shares, and we get paid an $0.84 (6.5%) annual dividend while we wait for that upside to materialize.
Many Yieldcos are currently trading at or below the value of their current assets. Even investors who believe that the Yieldco model is broken should consider buying and holding these stocks at current prices. If Yieldcos stay in the doldrums, and stock prices will never again recover, investors do not need the new acquisitions and dividend growth which could follow to earn an attractive risk-adjusted return.
Disclosure: Long NYLD/A, GLBL, CAFD, FSLR.
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.