Equity Research- PAC Partners
KEY POINTS
- RNE has a 10 year track record of delivering bioenergy and solar energy projects across Australia, and a project opportunity pipeline for 75MW with offtake agreements.
- Its seven projects already generate 5.5MW (Dec’18), and with shovel ready projects that deliver 10MW (end Dec’19) and 60MW (Dec’20). RNE should be at breakeven EBITDA runrate in CY’20F.
- RNE key differentiator is its Build Own and Operate Maintain (BOOM) with RNE’s two project development partners: $100m Bioenergy (RIWIF - UK Resonance Industrial Water Infrastructure Fund), and “potential” solar project funding partner(s)
- RNE also has strong relationships with end users of solar energy (SCA Property Group with four projects) and bioenergy (AJ Bush). These have led to heads of agreement with GrainCorp (GNC.AX).
- One financial advantage of RNE is the $265m of tax losses (from previous entity GDY.AX) which may be worth up to $0.06/share, and only half is in our DCF valuation of $0.12/share.
INVESTMENT VIEW
We initiate at Speculative Buy with positive view on:
- People. Craig Ricato has worked on several Australian renewable energy projects over the last seven years. COO Warren Leitao has extensive experience in delivering energy projects with his own company. He also entered into an exclusive arrangement with Siemens before leaving the group.
- Platform. We are comfortable with “cookie cutter” nature of the existing plants with two bioenergy and five solar projects. RNE has a solid value proposition for 1MW to 10MW projects. Each MW under management generates ~$50 EBITDA/MWh and RNE earns right to by 30% of its bioenergy assets and future solar assets. - Partners. The BOOM model relies on RNE’s partners. RIWIF is a solid $100m backer of bioenergy projects. The potential addition of a solar funding partner is an important future step.
-Valuation: PAC Partners estimate a DCF valuation of $18m vs MCap of $9m with RNE delivering its planned 60MW capacity by CY’21F and 145MW by CY’23F.
We assume RNE retains 30% equity in the 30MW of bioenergy and 30% in 110MW of solar. RNE could “earn” some of this equity through identifying, designing and building the plant, but we assume it pays for the 30% of equity ownership.
-Funding: We estimate that $11m of funding is supplied to RNE from partners who take equity positions with RNE over the next three years. RNE’s other options are to: slow down rollout, use a $2m debt facility; or raise equity from external investors.
-RISKS Emerging companies are usually subject to normal key man and funding risks. Mitigation – Key personnel are on share ownership packages and RNE has secured a significant project funder. Project delivery penalties can be significant from customers and investors. Mitigation – RNE has a two year track record in current entity and over 10 years with acquired companies and MD & COO. Regulation uncertainty with Government assistance (e.g.: feed in tariffs) power purchase agreements. Mitigation – Federal Government policy has accommodated expansion of feed in tariffs and alternative government is more supportive of clean energy
Key Milestones
Q2CY’19 – AJBush Bioenergy G4 expansion on 32ML Lagoon, Qld. 70% funding from RIWIF
Q2CY’19 Contract with GrainCorp (GNC.AX) for addition of solar energy plants to multiple silo sites
New Solar partner or entity to allow BOOM of large projects in solar division
Disclosure of Corporate Involvement PAC Partners has in the previous 12 months carried out work on behalf of the Company described in this report and received fees on commercial terms for its Research and Corporate services. PAC Partners does not own securities of the Company described in this report. PAC Partners associates do not own securities of the Company described in this report. PAC Partners does and seeks to do business with companies covered in the research. PAC may receive commissions from dealing in securities associated with the Company. As a result, investors should be aware that PAC Partners may have a conflict of interest that could affect the objectivity of this report. For more information about PAC Partners please visit
www.pacpartners.com.au
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