Investors Should Get Energized For NextEra Energy Partners IPO

Jun.25.14 | About: NextEra Energy (NEP)

Summary

NEP is a limited partnership formed by NextEra Energy, Inc. to acquire, own, and operate clean energy projects.

Given the annual yield of 3.75% at the midpoint of the expected IPO price range, we rate this IPO a buy if it prices within or below the expected range.

We are also positive on NEP's impressive management team and strong underwriters.

NextEra Energy Partners, LP (NYSEMKT:NEP), a limited partnership formed by NextEra Energy, Inc. (NYSE:NEE) to acquire, own, and operate clean energy projects, plans to raise $325.0 million in its upcoming IPO.

The Juno Beach, Florida-based firm will offer 16.3 million shares at an expected price range of $19-$21 per share. If the IPO prices at the midpoint of that range at $20 per share, NEP will command a market value of $1.9 billion.

Details of Filing, Underwriting

NEP filed on May 20, 2014.

Lead Underwriters: BofA Merrill Lynch; Goldman, Sachs & Co.; Morgan Stanley & Co. LLC

Underwriters: Barclays Capital Inc.; BMO Capital Markets Corp.; Credit Suisse Securities LLC; KeyBanc Capital Markets Inc.; RBC Capital Markets, LLC; Robert W. Baird & Co. Incorporated; UBS Investment Bank; Wells Fargo Securities, LLC

End of 25-day quiet period: Tuesday, July 22, 2014

End of lockup (180 days): Wednesday, December 24, 2014

Summary: NEP's Clean Energy Projects

NEP is a limited partnership spun off of NextEra Energy, Inc. to acquire, own, and operate contracted clean energy projects through a limited partner interest in NEE Operating LP; the firm will own a 17.4% limited partner interest and a controlling, non-economic general partner interest in NEE Operating LP.

NEP will own interests in nine operational wind and solar projects upon completion of this offering, as well as a tenth project that is ostensibly near operation. This initial portfolio is equivalent to 989.6 MW of contracted renewable energy products spread across North America.

NEP will attempt to acquire other desirable projects through NEE Operating LP. NEE Operating LP will have right of first offer on renewable energy projects that Next Era Energy Resources LLC chooses to sell.

Valuation

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

Revenue: $59,498,000.00

Net Income: $5,346,000.00

Total Assets: $2,654,312,000.00

Total Liabilities: $1,892,594,000.00

Stockholders' Equity: $761,718,000.00

Competition Throughout North America

NEP believes that it will face competition from various parties for opportunities in North America. These competitors may include developers, private equity funds, and pension funds, some of which may have access to far greater financial resources than NEP, and may have the capacity to outbid NEP for desirable projects.

NEP notes in its S-1 filing that it intends to make quarterly distributions of $0.1875 per unit, equal to $0.75 per annum. At the midpoint of the IPO's expected range at $20 per share, this would make for a solid 3.75% annual yield - assuming that the firm actually pays its distributions, which it is under no legal obligation to do.

Impressive Management

James L. Robo will serve as chairman and CEO of NEP's general partner; he also serves as president, chairman and CEO of NEE.

Mr. Robo joined NextEra as vice president of corporate development and strategy in March 2002. He previously served as president and CEO of a major division at GE Capital and as chairman and CEO of GE Mexico.

He also served as vice president of Strategic Planning Associates. Mr. Robo holds a B.A. from Harvard College and an M.B.A. from Harvard Business School. He is a director of J.B. Hunt (NASDAQ:JBHT).

Energetic Conclusion For Investors

Given the annual yield of 3.75% at the midpoint of the expected IPO price range, we rate this IPO a buy if it prices within or below the expected range.

Energy and yield company IPOs have performed strongly in 2014 thus far, and given NEE's strong reputation in renewable energy, we believe that its renewable energy spin-off should see success.

NEP should benefit from NEE beyond the parent firm's reputation; NEP should be able to leverage NEE's existing relationships and technical competence to its advantage in finding and acquiring desirable projects.

We invite readers wishing to join the discussion on IPOs to click the +FOLLOW button above the title of this article.

Note: As a large sample of information sources does not yet exist for NEP, we have taken much of the information for this article directly from NEP's S-1 filing.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in NEP over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.