In a research report published yesterday, Canaccord Genuity analyst John Quealy initiated coverage on Abengoa Yield (ABY) shares. Quealy issued a Buy rating with a price target of $49.00, which represents a potential upside of 31%. from where the stock is currently trading.
The following bullets contain some highlights from that call:
- Abengoa Yield is a premier provider of recurring (and growing) dividend income streams from a diverse set of attractive renewable energy and conventional power/transmission assets. With a total return focus, optimization of cash dividends (target payout is 90%) is a core goal.
- With a high-quality asset portfolio of 10 initial projects (~26-year contract tenor, 93% US$ denominated), ABY benefits from its relationship with ABGB – a key differentiator vs. other YieldCos. These identified “drop-down” assets represent annual CAFD potential of ~$60M+, with longer-term targets (‘17+) estimated at an additional ~$150M+ per year.
- Initial YieldCo assets are differentiated and very attractive (10 assets transferred with public listing of the ABY shares, multi-technology/geography, primarily US$ denominated), consisting of 710 MWs of renewable energy generation (solar, wind), 300 MWs of conventional power generation (cogeneration facility in Mexico), 1,018 miles of electric T&D lines, and an equity investment in ACBH (Brazilian T&D projects).
- These projects are set to drive recurring cash flows from long-term supply contracts (e.g. power purchase agreements) on a very young asset portfolio, with ~26-year average remaining life. All are investment grade off-takes, over 90% US$ denominated, and project-level debt is in place for all ten initial assets (~$2.83B as of 3/31/14). We note that all projects are currently in operation except for Mojave (expected to commence in October ’14, currently in production testing).
According to TipRanks.com, which measures analysts and bloggers success rate based on how their calls perform, analyst John Quealy currently has an average return of 29.6% and a 60% success rate. Quealy is ranked #39 out of 3162 analysts.
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