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Summary

  • Will own, manage and acquire renewable energy, conventional power and electric transmission lines and other contracted revenue-generating assets.
  • Initially focused on North America (the United States and Mexico) and South America (Peru, Chile, Uruguay and Brazil), as well as Europe (Spain).
  • Initial yield at the price range mid-point of $26 is 4% projected for the 12 months ended June 2015, and expected to grow to 6.5% for the next 12 months.

Based in Brentford, United Kingdom, Abengoa Yield plc (NASDAQ:ABY) scheduled a $601 million IPO on the Nasdaq with a market capitalization of $2.08 billion at a price range midpoint of $26 for Friday, June 13, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint managers: Citi, BofA Merrill Lynch, Canaccord Genuity, HSBC Corporation, RBC Capital Markets, Banco Santander

Co-Managers: None

End of lockup (180 days): Wednesday, December 10, 2014

End of 25-day quiet period: Tuesday, July 8, 2014

Summary

ABY will own, manage and acquire renewable energy, conventional power and electric transmission lines and other contracted revenue-generating assets initially focused on North America (the United States and Mexico) and South America (Peru, Chile, Uruguay and Brazil) as well as Europe (Spain).

The two assets in the US are solar plants, and are therefore not subject to EPA's cap and trade policies designed to disable coal plants.

The initial yield at the price range mid-point of $26 is 4% projected for the 12 months ended June '15, and expected to grow to 6.5% for the 12 months ended June '16.

The parent currently yields 2.3%. The average S&P 500 dividend yield is 1.88%.

Most spinoffs that pay a significantly higher dividend than their parent at least edge up on the IPO, perhaps because parent shareholders are buyers for the spin-offs' higher yield.

ABY expects to pay out 90% of cash available for distribution.

Valuation

Glossary

Valuation Ratios

Mrkt Cap (MM)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

2013 yr because seasonal

Abengoa Yield plc

$2,080

3.5

38.5

1.1

-0.6

29%

ABY projected yield June '15

.

.

.

.

.

4.0%

ABY projected yield June '16

.

.

.

.

.

6.5%

Compare

Valuation Ratios

Mrkt Cap

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

2013 yr because seasonal

Abengoa Yield plc

$2,080

3.5

38.5

1.1

-0.6

4.0%

Abengoa, S.A. - American Depositary Shares (NASDAQ:ABGB)

$3,640

0.5

33.1

1.9

3.5

2.3%

NRG Yield (NYSE:NYLD)*

$5,070

16.2

75.7

8.1

9.3

2.8%

*forcasting 20% dividend growth in 2014

Pattern Energy Group (NASDAQ:PEGI)

$1,540

7.6

90.6

3.3

3.3

4.3%

Conclusion
Positive - ABY should edge up post-IPO. The stock also should be OK to hold for the yield portion of a portfolio.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

ABY is a dividend growth-oriented company formed to serve as the primary vehicle through which Abengoa, S.A. (ABGB), or Abengoa, will own, manage and acquire renewable energy, conventional power and electric transmission lines and other contracted revenue-generating assets, initially focused on North America (the United States and Mexico) and South America (Peru, Chile, Uruguay and Brazil), as well as Europe (Spain).

In the future, ABY intends to expand this presence to selected countries in Africa and the Middle East.

ABY believes it is well positioned to be a premier company for investors seeking a total return based on stable and growing dividend income from a diversified portfolio of low-risk, high-quality assets, and for investors with a key objective of accretive dividend growth.

ABY intends to take advantage of favorable trends in the power generation and electric transmission sectors globally, including energy scarcity and a focus on the reduction of carbon emissions.

To that end, ABY believes that its cash flow profile, coupled with its scale, diversity and low-cost business model, will offer it a lower cost of capital than that of a traditional engineering and construction company or independent power producer and provide it with a significant competitive advantage with which to execute its growth strategy.

With this business model, ABY's objective is to pay a consistent and growing cash dividend to holders of its shares that is sustainable on a long-term basis.

Payout ratio target

ABY expects to target a payout ratio of 90% of its cash available for distribution and will seek to increase such cash dividends over time through organic growth and as it acquires assets with characteristics similar to those in its current portfolio. ABY will focus on high-quality, newly-constructed and long-life facilities with creditworthy counterparties that it expects will produce stable, long-term cash flows.

11 Assets post IPO

Upon consummation of this offering, ABY will own 11 assets, comprising 710 MW of renewable energy generation, 300 MW of conventional power generation and 1,018 miles of electric transmission lines and an exchangeable preferred equity investment in ACBH.

Each of the assets ABY owns has a project-finance agreement in place.

ABY's project-level debt was approximately $2,830 million as of March 31, 2014. When ABY refers to these assets as assets or being owned by ABY throughout the prospectus, ABY means that they will be transferred to ABY by Abengoa and owned by ABY immediately prior to the consummation of the offering.

Dividend Policy

ABY intends to pay a regular quarterly dividend in U.S. dollars to its shareholders starting in the third quarter of 2014. ABY's quarterly dividend will initially be set at $0.2592 per share, or $1.04 per share on an annualized basis, and the amount may be changed in the future without advance notice.

The annualized yield at the price range of $26 mid-point is 4%.

Intellectual Property

ABY will enter into a licensing agreement with Abengoa pursuant to which Abengoa will grant ABY a non-exclusive, royalty-free license to use the name "Abengoa" and the Abengoa logo. Other than under this limited license, ABY will not have a legal right to use the "Abengoa" name or the Abengoa logo.

Competition

ABY competes based on the location of its assets and ownership of portfolios of assets in various countries and regions. However, because its assets typically have 20- to 30-year contracts, competition with other asset operations is limited until the expiration of the PPAs.

Power generation and transmission are highly regulated businesses in each country in which ABY operates and are currently highly fragmented and have a diverse industry structure.

ABY's competitors have a wide variety of capabilities and resources. ABY's competitors include, among others, regulated utilities and transmission companies, other independent power producers and power marketers or trading companies and state-owned monopolies.

5% stockholders

Abengoa indirectly owns all of ABY shares.

Use of proceeds

ABY expects to net $568 million from its IPO. Proceeds are allocated as follows:

Distribute all of the net proceeds from this offering, less $30 million to strengthen its liquidity position, to Abengoa, as part of the consideration paid to Abengoa in connection with the Asset Transfer.

Disclaimer: This ABY IPO report is based on a reading and analysis of ABY's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Source: IPO Preview: Abengoa Yield Plc