https://www.theaustralian.com.au/business/wealth/sunny-future-for-new-solar-innovator/news-story/223e7de3f0f296f966d83ba3df042eceNew Energy Solar: Sunny future for new solar innovator
Industry: Renewable electricityNew Energy Solar
ASX code: NEW
Share price: $1.38
Forecast FY19 yield: 5.6 per centThe price of solar electricity has fallen dramatically over the past decade due to decreases in manufacturing, installation and operating costs.
Solar energy prices are closing in on traditional forms of energy. As the number of solar farms increases worldwide, one Australian company is well positioned to capitalise on what many regard as the inevitable future of energy generation.
New Energy Solar is the first ASX-listed solar infrastructure business, with a market cap of about $480m. NEW is an externally managed solar energy pure play that acquires, manages, owns and part-owns large-scale solar generation facilities across Australia and the US with a capacity totalling 844 megawatts.
The business earns revenue by selling electricity generated under long-term power purchasing agreements (PPA) to offtakers (customers). A major attraction of the portfolio is its long-dated PPA contracts with a weighted average duration of 16.8 years. All nine are with reputable buyers, including governments, corporations and universities.
The largest offtake agreement is with a subsidiary of the Edison international US public utility company, which is committed to a quarter of NEW’s contracts by capacity weight.
This has a 20-year PPA, with construction planned to be completed during the second half of 2019. Of the 844MW capacity, just over half of the plants are currently operating, with the rest of the contracts remaining under construction.
NEW is trading at a discount to its net asset value of $1.53. The stock pays a semi-annual unfranked distribution, which is yielding about 5.6 per cent. Earnings are subject to currency risk. As with most bond proxies, the pricing of NEW may also be impacted by any increase in bond yields.
While NEW is open to exploring new opportunities in Australia, management believes there are better prospects in the US. With gearing around 50 per cent, acquisitions may require the injection of fresh equity capital.
With a diversified portfolio, NEW aims to generate a positive social impact coupled with attractive financial returns — both of which it has done so far, by distributing $25m to shareholders, while displacing an estimated 1,174,000 tonnes of carbon dioxide emissions.
For those investors looking to offset their carbon footprint as well as receiving an attractive yield with the potential for some capital gain upside, 10,000 NEW securities represent 49,000KWh of emission-free electricity per annum, which is the equivalent of powering 6.7 US and Australian homes.
Hugo de Vries is an analyst for Clime Australian Income Fund.
www.clime.com.au
