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Summary

  • ABY is a dividend growth-oriented firm, formed to own, acquire, and manage contracted revenue-generating assets for Abengoa S.A.
  • ABY plans to raise $600.6 million in its upcoming IPO, at an expected price range of $25-$27 per share.
  • We are positive on this IPO; pricing at the midpoint of the expected range will provide a solid 4.0% annual yield.

Abengoa Yield PLC (NASDAQ:ABY), a dividend growth-oriented firm, formed to own, acquire, and manage contracted revenue-generating assets for Abengoa S.A., plans to raise $600.6 million in its upcoming IPO.

The Brentford, U.K.-based firm will offer 23.1 million shares at an expected price range of $25-$27 per share. If the IPO can find the midpoint of that range at $26 per share, ABY will command a market value of $2.1 billion.

Filing and Underwriting

ABY filed on April 1, 2014.

Lead Underwriters: BofA Merrill Lynch; Citigroup Global Markets Inc.

Underwriters: Banco Santander, S.A.; Canaccord Genuity Inc.; HSBC Securities (USA) Inc.; RBC Capital Markets, LLC

Spinoff of Abengoa, S.A.

ABY is a spinoff of Spanish multi-national Abengoa, S.A. Abengoa is a dividend company, formed to handle the management and acquisition of revenue-generating assets, related to Abengoa's renewable energy and conventional power assets, located in North and South America and Spain. Abengoa will indirectly own approximately 71.1% of ABY shares upon completion of this offering.

The firm will attempt to acquire facilities on the basis of criteria, including recent construction, expected lifespan, creditworthy counterparties and expected long-term cash flow.

Upon completion of this offering, ABY will receive eleven assets from Abengoa, which total 300 MW of conventional power generation, 710 MW of renewable energy generation, and 1,018 miles of electric transmission. ABY will also receive an exchangeable preferred equity investment in Abengoa Concessoes Brasil Holding (ACBH), a Brazilian subsidiary of Abengoa primarily concerned with the management of transmission lines.

Valuation

ABY offers the following figures in its F-1 balance sheet for the three months ended March 31, 2014:

Revenue: $84,130,000.00

Net Loss: ($28,561,000.00)

Total Assets: $5,995,266,000.00

Total Liabilities: $4,509,281,000.00

Stockholders' Equity: $1,485,985,000.00

ABY expects a payout ratio of 90% of its cash available for distribution. The firm intends to pay quarterly dividends of $0.2592 per share, or $1.04 per share annualized. At the midpoint of the expected IPO price range, this is equivalent to a 4.0% annual yield. The firm will also pay a dividend pro-rated to the days between the completion of the IPO and the end of the second quarter of 2014 at the time of its third quarter dividend.

Other Acquisition-Oriented Rivals

ABY will face competition from other organizations for acquisition opportunities, including some parties with greater resources that may be able to pay more for those assets. These competitors will include regulated transmission and utility companies, state-owned power monopolies, and independent power producers. Contracts on the power resources that ABY will compete for are typically multiple decades in length, meaning that the firm must take advantage of limited opportunities in order to expand.

ABY has an agreement with Abengoa S.A. that guarantees the firm right of first refusal on relevant assets offered for sale by Abengoa S.A.

Experienced Management

Chairman of the Board Manuel Sanchez Ortega has served as Chairman since ABY's December 2013 formation.

Mr. Sanchez has worked for Abengoa in some capacity since 1989, when he joined the firm as a software engineer; he has also served Abengoa as Executive Vice President in Mexico, Chairman and CEO of Abengoa's Information Technologies business, and CEO of Abengoa-he continues to hold the latter position.

He received a degree in Industrial Electrical Engineering from the ICAI in Madrid and a Master's degree in Business Administration from the Instituto Panamericano de Alta Direccion de Empresas (IPADE) in Mexico.

He is joined by ABY CEO Santiago Seage; he previously served as Abengoa Solar's CEO and Abengoa's Vice President of Strategy and Corporate Development. He holds a degree in Business Management from ICADE University in Madrid.

Conclusion: Buy, Due To Solid Yield

We're positive on this IPO at its expected price range; a pricing at the midpoint of the expected range will provide an exceptional 4.0% annual yield. The bankers are selling this as a yield play and we are hearing the book is solid and oversubscribed.

ABY's current losses are more reflective of its limited operating history than its ability to generate profits. The firm's relationship with Abengoa should benefit it in identifying and acquiring worthy assets, and the Abengoa-based management structure should continue to provide solid executives.

The IPO will merit significantly more interest if it prices below its expected range.

Source: IPO For Abengoa Yield PLC Looks Exceptional