SpareBank just issued analyst report on one of our larger positions. This seems to be no brainer investment. You are buying a company for cash it has. We have devoted one of earliers blog post on this when Fearnley issued their reseach on MPCES, which was equally bullish. The company is down due to overall sell off of the renewables sector. We have been increasing our position this week.
Sparebank: MPCES – PRICED AT CASH DESPITE SIGNIFICANT VALUE POTENTIAL IN FIRM BACKLOG
Following the recent private placement in MPCES, the company holds a cash position of ~USD90m or a cash value per share of ~NOK34.5/share. This stands in contrast to a current share price of NOK35.5/share and, hence, MPCES is priced at a minimal premium to its cash position. In our view, the company is heavly undervalued, and we will try to explain why in the following bullets.
- The company holds a firm “execution pipeline” (firm backlog in usual terms) of 77MW, with a combination of operational assets and assets under development. The capital investment in these projects amounts to USD72m. Equity funds are available after the latest capital raise and the final investment decisions on all of the execution pipeline projects are expected to be reached within Q2 2021. The operational assets in the execution pipeline, “Honduras” and “Puerto Rico” (75% of total capacity), will thus generate revenue to MPCES already within the next couple of months. The company has guided equity IRR’s in the range of 12-16% on its execution pipeline. Further below, we provide a sensitivity to the share price value at different discount rates, assuming MPCES is able to achieve only a mid-range on its guided equity returns. Bear in mind, 75% of the projects are already operational, and it should thus not be all that difficult for MPCES to give a comfortable guidance.
- In addition to its execution pipeline, MPCES hols a backlog pipeline (backlog in usual terms) of 207MW. 84% of these projects are under exclusivity or have the right of first refusal. The backlog pipeline is also a combination of assets in operation and under development. The company guides equity IRRs in the range of 11-16% on these projects and the company expects to reach a final investment decision on all of the projects within Q2/Q3 this year, dependent on additional funding.
- Also, MPCES holds 333MW of assets (early stage development projects) under ownership, which it received as a payment from the sponsor during the recent private placement. Santa Rosa, a 20MWp Solar PV project, is expected to start construction already by Q3 2021 and the project is fully funded. The remaining 6 projects, 5 in Colombia and 1 in Jamaica, are expected to reach construction in parallel or after the backlog pipeline is developed. The Colombia projects and Jamaica project are both dependent on additional funding.
- Finally, in its admission document in relation to the listing, MPCES stated that it has a 92% exposure to corporates and privately held utilities and only 8% exposure towards state-owned utilities. This is an exposure which in our view is preferable as we believe it easier to claim payments from customers that have a direct benefit from your offering (more expensive to pay for grid electricity) than from governments who’s rationale has been to accelerate the growth of renewables rather than focusing on profitability.