- With over 70 years experience in Europe Abengoa only listed on the NASDAQ in October.
- Continued global diversification in both locations and product offerings since 2003; a fact which was overlooked during the financial collapse.
- After a 100% gain since November is there anything left?
As always, I do like to try and find you a multinational company that is making money and saving the planet at the same time. Those of you who read my article about Norsk Hydro (OTCQX:NHYDY) will be familiar with the idea. Just like Norsk Hydro, if you mention Abengoa (NASDAQ:ABGB) to most U.S. investors they would say; Aben who?
They could not tell you that Norsk Hydro is an aluminum company which is almost as big as Alcoa (NYSE:AA), or that Abengoa is an electrical transmission, engineering construction company. I almost included it in my article about the World Cup, which was published in December, as it is certainly benefiting from Brazil. If I had done that you would have been looking at a nice profit by now.
The only reason I did not discuss Abengoa then is that there is just too much to talk about and it would have taken over the entire article. So is there more upside left here?
Abengoa the Company.
Abengoa (MCE: ABG.B/P SM) applies innovative technology solutions for sustainability in the energy and environment sectors, generating electricity from renewable resources, converting biomass into biofuels and producing drinking water from sea water. Abengoa's business is structured around three activities.
The three segments are:
Engineering and construction
This is where the company started. Originally it constructed automatic signaling for the rail system in Spain. Now with more than 70 years of experience in the market it specializes in complex turn-key projects for solar-thermal plants, solar-gas hybrid plants, conventional generation plants, biofuels plants and water infrastructures, as well as large-scale desalination plants and transmission lines, among others.
This is the part of the company that operates like a utility. It has an extensive portfolio of proprietary concession assets that generate revenues and are governed by long-term agreements. This segment includes the operation of electric (hydro, solar, cogeneration or wind) energy generation plants and transmission lines.
Businesses with a high technological component, such as biofuels or the development of solar technology. The company holds an important leadership position in these activities all of the company's assets in the United states fall under this category.
I left the Spanish ticker in there for those of you who may want to pick some of the stock up in euros. Although this is a Spanish company, the majority of revenues come from outside Spain. I expect about one third of the company's total revenues to come from the U.S. in the near future, about $1,449 million came in from 2013. The company also has good exposure to all of the BRIC countries except Russia. This is not such a bad thing given the current political climate and they more than make up for it with the work they are doing in Africa. Perhaps CABI would be a better term.
They have a total of 45 facilities in operation globally including, 1 solar and 6 ethanol plants in the U.S.
With a market cap of 3.3 billion and shares outstanding around 141 million, Abengoa is larger than a lot of the companies that I normally cover. However it is still relatively unknown in the U.S. and that provides for opportunity.
The rest of the figures I will give you in euros from the Annual Report. This is a new listing here on the NASDAQ and as such figures and projections are a bit spotty in dollar terms.
The growth rate is impressive and certainly justifies current market price of $23. Strategically the company has been going in the right direction also. The company has continued to diversify its properties and geographical spread. It is no longer dependent on Spain for over 50% of income. During recent years, this company was viewed as a member of the PIGS and overlooked. This was not entirely fair as it had already begun to expand the global reach prior to the financial collapse.
From the Annual Report 2013
So is this all built into the stock price? I do not think so; the company is still relatively unknown in the U.S. and only trades about 14K shares on any given day. Although we are nearing a high I still feel the stock is undervalued. This is especially true when we look at future growth and projects under construction or in development.
The Project Pipeline.
Projects currently under construction (sourced from corporate interactive map).
- 3 more solar plants. 1 in California and 2 more in South Africa.
- 8 more transmission lines all in South America. Split roughly 50/50 between Brazil and Chile.
- 2 more desalination projects in Africa.
- 2 more power plants in Mexico, 2 wind farms in Brazil, a hospital in Malaga (Spain) and a steel manufacturing facility in India.
That makes a total of 19 more facilities currently under construction. In terms of new projects planned;
- An aqueduct in Chile.
- A desalination project in Oman.
- A power plant in Poland.
- Another ethanol plant in Kansas.
- Develop South America's largest solar-thermal plant in Chile
- Build a photovoltaic project for EDP Renovaveis (OTC:EDRVF) in California
So once those 25 projects are complete, it will bring their facilities count to 70. Remember that the figures in the previous section relate to the current 45 and construction revenues also; a 50% increase in facilities in the next few years.
With issues like the drought in California, or in other years Texas, it is easy to imagine one of two of those desalination projects in the U.S. not many years from now. This plant in Spain produces over 500,000 gallons of fresh drinking water per day.
Image from the Corporate Interactive Map
It sounds like a lot of water, but at 168 gallons per day per capita, you would need quite a few to support just Los Angeles. Either way, a few dotted along the coast could only help existing water supplies in drought years. Although the plant in China had only half the capacity, they just sold their share for 53 million Euro.
Although the stock has had a good run, the future is bright and the company has plenty to keep themselves busy.
I included the Madrid ticker in this article as I would recommend holding a small part of a position in euros if you are able. This would provide a hedge against dollar uncertainty in coming years. Ideally you could accumulate this position during times of dollar strength. Both listings pay a dividend, which I expect to be increased this year. There was a 50% increase from 2012-2013.
I will point out that this is also a utility and that S&P revised their credit outlook from negative to positive. In addition to the stocks the company has some decent bonds which are yielding 6-8%. This could also help to diversify any position you accumulate in Abengoa.
If you do not own any shares yet, I would be inclined to wait for a bit of a pullback. I am not sure when that will happen as we are currently moving higher on negative MACD. We are also close to a PSAR flip and may indicate that momentum will cause a breakout soon. This is highly speculative.
However, if you are a multi-year investor, then now is as good a time as any. This company is making real inroads in the U.S. with solar power and could give First Solar (NASDAQ:FSLR) a run for its money. They also have the benefit of diversity, which should never be overlooked.
I am happy to place a $35.28 price target for this time next year. This really only reflects the current growth rate and facility expansion. It does not take into account the reductions in CapEx and improving financing options that the company is experiencing. Both of these instances will ultimately be reflected in EPS and dividend increases at some point.
Additional disclosure: This article may contain certain forward-looking statements. I have tried, whenever possible, to identify these forward-looking statements using words such as "anticipates," "believes," "estimates," "expects," "plans," "intends," "potential" and similar expressions. These statements reflect my current beliefs and are based on information currently available. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual results, performance or achievements to differ materially from those expressed in or implied by such statements. I undertake no obligation to update or provide advice in the event of any change, addition or alteration to the information contained in this article, including such forward-looking statements.