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Enviva Partners: Powering The Green Future

Mar. 10, 2020 4:13 PM ETEnviva Inc. (EVA)13 Comments


  • Enviva Partners is the global leader in a niche market.
  • 8.7% yield from a green machine with 1.6x coverage.
  • 18th consecutive quarter of increased distributions; K-1 issued during tax time.
  • Strong long-term contracts with a sales backlog of ~$10.6 billion and avg. duration of 11.4 years.
  • Opportunities in the pipeline with potential to double the product sales backlog.

The Opportunity

A sharp drop in Enviva Partners' (NYSE:EVA) stock price following the market-wide panic due to coronavirus and the oil price slump presents a great buying opportunity for long-term investors.

In my opinion, the spread of coronavirus has little to do to impact operations of the partnership. Further, the driving force behind Japan, Denmark, the UK and South Korea (EVA’s customers) increased demand for wood pellets is to tackle climate change by reducing dependency on fossil fuels. With strong long-term contracts underway and increased push to reduce greenhouse gas emissions, I believe the short-term drop in oil prices would not cause detraction from the greater cause.

Source: Investor Presentation

The Business

Wood pellets are sustainably produced at Enviva’s plants, stored and shipped to customers, majority of whom are in the UK, Europe and Japan.

Source: Enviva Partners website

The wood fiber used for wood pellet production predominantly is comprised of:

  1. Low-grade wood fiber: Trees or wood that are unsuitable for or rejected by the saw-milling and lumber industries because of small size, defects (e.g. crooked or knotty), disease, or pest infestation.

  2. Tops and limbs: The parts of trees that cannot be processed into lumber.

  3. Commercial thinnings: Harvests that promote the growth of higher value timber by removing weaker or deformed trees to reduce competition for water, nutrients, and sunlight.

  4. Mill residues: Chips, sawdust and other wood industry byproducts.

The company explains in its 10-K the lack of other competing usage for its wood source:

"Demand for the non-merchantable fiber, waste products or byproducts that we use is generally low because they have few competing uses, in part because they cannot be transported cost-effectively. The tops, limbs and other low-grade wood fiber we purchase would otherwise generally be left on the forest floor, impeding reforestation, or burned. Wood pellet production provides a profitable use for the

This article was written by

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Venkat holds a master’s degree in electrical engineering from Washington University in St. Louis. He is an expert in identifying attractive business models with strong fundamentals. He is currently a management consultant for one of the largest professional services firms in the world. He enjoys identifying opportunities that are significantly discounted with capability to generate outsized cash flows. Venkat's main focus today is on high-yield, and dividend-growth stocks for current income and long-term capital gains. Hidden Opportunities is a proud part of the High Dividend Opportunities research team, the #1 marketplace for income seekers on Seeking Alpha.

Analyst’s Disclosure: I am/we are long EVA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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