Tuesday, November 10, 2015

Hot New Boy Band, SunEdison and the Yieldcos, Disappoint, Get Panned By the Critics, Crash, Burn (SUNE; TERP; GLBL)

After the big run up in early October the stock drifted lower. Until today:
SUNE SunEdison, Inc. daily Stock Chart
Down 22.57% at $5.73 after setting an all-time low earlier today.

Obviously there is something seriously wrong with these things, we'll have more tomorrow.

In the meantime the prima facie riskiest of the bunch TerraForm Global did not set a new low and may have found a place where risk balances reward. Basically a bet that it will be around without any dilution and pay the .275 dividend for 26 quarters leaving the solar assets as a big fat residual. TerraForm Global, where the BRICS still live. $7.20 down 36 cents. Yes you read the numbers correctly, a 15.1% indicated annual dividend yield. A bit above the risk-free rate but if they can pay it...

From Barron's Income Investing:

Painful Day for SunEdison and its YieldCos; SUNE Down 20%
Solar development company SunEdison (SUNE), parent to two companies that purchase its completed projects — so-called yieldcos — reported some pretty disappointing quarterly results Tuesday morning.
Shares of SunEdison were down 20% at 10:30 a.m. ET and its two yieldcos, TerraForm Power (TERP) and TerraForm Global (GLBL) were down 15% and 7% respectively.
Earnings were bad enough to potentially throw more cold water on the whole yeildco concept, which earlier this year looked like it was gaining credibility on Wall Street. The fledgling yieldco group fell along with the broader energy sector, but had bounced back in October. SUNE has been one of the most aggressive acquirers in the renewable space.
Yieldcos were originally created to help supply cheap financing for new renewable energy projects. But as stock prices have fallen (and the dividend yields increased), it’s become an expensive form of funding.
Here’s some of the bad news from SUNE investors were focusing on Tuesday morning
  • SUNE posted a loss per share of 91 cents when analysts expected a loss of 70 cents per share
  • It cut its guidance for the amount of cash flow it could distribute to shareholders
  • Its backlog of new projects fell
  • It announced job cuts last month
However, TERP earnings, taken on their own, weren’t disappointing and had some bright spots.Janney analyst Michael Gaugler wrote Tuesday:
Solid 3Q15 results and a better-than-expected forward outlook through 2016 increased our positive investment thesis on TERP shares. The Company’s ability to “work around the edges” in terms of meeting financing needs for project growth is admirable.

Prior coverage:

Aug. 6
Solar: SunEdison Reports Losses, Drops 24% (SUNE)
See also yesterday's "Equities: This Year Earnings Matter (FSLR)"
Aug. 17
Renewable Yieldco, TerraForm Global, Floats 7-Year Debt With a 9.75% Coupon (GLBL; SCTY)
That is expensive money.
Oct 12
"Renewable Energy Stocks Fall as YieldCo Structure Questioned"

And an August 2014 post where I rambled on much longer than I usually do (see above one line examples)

Chasing Yield: The Solar Yieldco
Long time readers know we have a bias toward the "new, new thing" as trading vehicles. It is where you get the most volatility which in theory should reward those who can keep track of all the moving parts: valuation, emotions, regulation etc, etc.

Although solar is touted as 'emerging' tech by folks who desire subsidies we've actually gone through a few boom/bust cycles over 3-4 decades which gives a small advantage to the old and decrepit who can remember  the last go-round or two.

In theory.

The  2005-2008 mania was probably best exemplified by First Solar: Nov. '06 IPO at $20, $317.00 top tick in May 2008, $11.43 by June 2012. Yeah baby!

The yieldcos are not 'solar' in that speculative sense but rather a different species with their own set of idiosyncrasies and traps for the unwary....