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RE Royalties: The Market Has Completely Missed This ESG Play

Kingdom Capital profile picture
Kingdom Capital


  • RE Royalties operates as an investor in renewable energy development, providing financing to develop projects and then collecting a royalty stream after the project starts operations.
  • The business model is extremely attractive, given the asset-light model, recurring revenue streams, and secular shift to ESG investments.
  • Despite this, the stock yields over 3% and trades at a fraction of peer valuations while growing at an impressive clip.

Solar panel on dramatic sunset sky background, Alternative energy concept
Photo by Thinnapob/iStock via Getty Images

Sometimes while browsing for companies, I stumble across gems that I wasn't even looking for. While looking into an obscure royalties business, Pardee Resources (OTCPK:PDER), I discovered RE Royalties (OTCQX:RROYF

This article was written by

Kingdom Capital profile picture
Deep value investor focused primarily on microcap stocks. Registered Investment Advisor located in Virginia.

Analyst’s Disclosure: I am/we are long RROYF. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (40)

Hi @Kingdom Capital do you know why it sold of so sharply in recent days? Also how do you view recent earning reports? What’s your current overall view?
Kingdom Capital profile picture
@MichaelKoeppel no Q4 numbers out yet, they've lagged what I hoped they could achieve by now and have diluted more than you'd want to see. They need to hit enough scale to cover operating costs more comfortably. Maybe they can do that after recent green bond raise, we'll see how they deploy.
Kingdom Capital profile picture
@MichaelKoeppel yeah - certainly seems to be trending the right way again - but as you can see they're lagging the $1.5m of cashflow and $6m of revenues I was showing if they maintained prior growth. This has been a double-edged sword since they diluted some to fund growth they couldn't fund organically.
trading at 52w low, when are the next earnings?
Kingdom Capital profile picture
@Breaker12 based on last year, they filed Q2 on 8/31. Q1-21 came in behind where I had them, need them to close some of these LOIs and get the revenues up - otherwise they'll be issuing more shares just to pay the dividend. Wish they would just reinvest in projects instead of the dividend.
@Kingdom Capital didn’t they say thats how they pay themselves? i.e. through dividends. unlikely they’ll stop paying dividends… do they have a history of dillution?
Kingdom Capital profile picture
@Breaker12 yes, that is how they pay themselves. They have done some dilutive financing, I’m more just curious to see how they finance over $30m of pipeline with much less cash, given they have the shelf registration.
30 Jul. 2021
@Kingdom Capital
The current pipeline is insane right now. I am buying more and more.

The Company has a robust pipeline of potential royalty financing opportunities and is in advanced discussions on several opportunities that have a cumulative transaction value of $46.8 million Canadian dollars, and include the following:

Renewable Natural Gas 1: $8.5 million loan and royalty acquisition of two renewable natural gas projects located in the United States. The loan will be used to complete the conversion of an existing facility, and the construction of a second facility, for converting agricultural waste from local dairy farms to produce renewable natural gas.

Battery Storage 1: $12.5 million royalty acquisition with a United States company to finance the production of mobile utility-scale battery storage units, for sale and rental to electricity utilities in the United States.

Battery Storage 2: $5.8 million sale-leaseback and royalty acquisition with a Canadian company to finance a battery powered electric generator rental pool program for a major utility located in California. The battery powered generators are portable and will be utilized for emergency backup power to assist the utility in building grid resiliency during the California fire season.

Battery Storage 3: $10 million loan and royalty acquisition with a Canadian company to finance the acquisition of a portfolio of operational commercial-scale battery storage projects and to finance the construction of a second portfolio of battery storage projects, located in Ontario.

Battery Storage 4: As previously announced on March 29, 2021, the Company has entered into a non-binding letter of intent for a $10 million loan and royalty acquisition with Canigou Molonglo Bess Pty Ltd. (“Canigou”) to finance a 10-megawatt battery storage project located near Canberra, Australia. The Company continues to advance due diligence with Canigou with the aim of completing the transaction in the fourth quarter of this year.
Kingdom Capital profile picture
@czaw very solid, if they can close these and get around 10% interest next year, finance income could be closer to $5m than the $2.7m I modeled
30 Jul. 2021
@Kingdom Capital yeah but i dont think they have the oppurtunity to close all of these though. If they close 20m cad i would be a happy camper
Kingdom Capital profile picture
@czaw with the $100m shelf, they may raise some funds to do more, we'll see. Hopefully not too much dilution down here.
RE Royalties Ltd. (RE.V)
TSXV - TSXV Real Time Price. Currency in CAD
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1.0400-0.0300 (-2.80%)
At close: May 7 2:10PM EDT next week below CAD 1

I love the stocks from Kingdom Capital
Kingdom Capital profile picture
Link to the presentation they just did for anyone following - www.renmarkfinancial.com/...
Sean J A profile picture
Hi there - I'm looking to take a small position in RE and would prefer to buy the Canadian TSX listing (RE.V). Volume is comparable to that of the US listed RROYF, but wondering if you have any insight as to why one would buy RROYF over RE.V?
Kingdom Capital profile picture
@Sean J. CPM No reason, Seeking Alpha only lets me tag US tickers so that's what I used for the article.
Started a small position during back in March/April 2020 and will likely average down eventually. Like the concept very much. Though, bit surprised at the dividend announcement, think it'd make more sense to keep that cash and reinvest in the business, especially for a relatively small shop like this one.
12 Apr. 2021
@PhilippeG I had the same reaction. But i think it lies in the 30 ish % of insider ownership. I asked about a possible stated dividend policy. This is the answer i got (and the question):
•If the current growth continues RER will have the ability to pay out more Money in terms of dividends in the future. Will there be a stated policy of say maybe handing out 50% of the recurring royalty income and use the rest of the 50% and the Money from finance income to strike more royalty deals?

oThis a great question, but it is hard to say at this point. As everyone who works at RER is a shareholder, we would love to see the dividends increase over time and we believe the royalty model is perfect for servicing dividends. But as far as any changes to our dividend policy in the future, that is ultimately a board decision.
- Bryce Andersob VP investments
10 Apr. 2021
Great article!
As an shareholder for both Altius and RER i find the coverage of RER non existant. I see great potential in both companies. That battery deal is unheard of in terms of both interest rate on the loan and royalty procentages. I've talked with management a bit and here's the answer why they are not doing the entire life of the project (From Bryce Andersson VP investments)
• Do you have any plans for closing royalty deals that span the whole Project Life instead of the up to 20 years time horizon now?
o Hard to say. We have looked at this in the past but the issue is forecasting what power prices will be 20+ years from now. We typically tie the royalty to the life of the Power Purchase Agreement as that rate is fixed, so it is much easier to agree with the project owner on what the revenues should like during the term of this agreement. Past 20 years, the owners are usually quite optimistic about production and pricing but we try to take a more conservative approach as there is a lot of uncertainty. All of which makes it hard to agree on a value for the part of the royalty that extends past 20 years (or the term of the PPA).
Kingdom Capital profile picture
@czaw @KKWW23 interesting you both point this out, since the new Australia deal is for the life of the project
12 Apr. 2021
@Kingdom Capital The thing is that the estimated lifetime of that battery project isnt that long (unless they expand and maintain it). I believe that the capacity in energy storage wont follow Moore's law due to the restrictions in thermodynamics and that we will depend on some sort of battery technology in the future. What i like about both Altius and RER is that the renewable energy sources now are developed in the most attractive locations. Having royalties on projects in cost effective locations will be good for the future royalties (Both expansion and retainment)
I think another reason Altius is trading at a premium because it's royalties don't have an expiration date.
Kingdom Capital profile picture
@KKWW23 would worry me more if RE hadn't already shown they can hit the high end of their IRR targets. I'm less concerned about the term of your deals if you can compound more quickly.
@Kingdom Capital I understand your point, but my biggest concern is whether history can be repeated. As renewal energy is finally going mainstream and those renewal developers can probably get green bond or cheaper financing on their own now than few years ago, I am thinking whether they will still find doing deals with RE royalty to be attractive.
Kingdom Capital profile picture
@KKWW23 it's a good question. A few things that helped me get comfortable:

1. Pardee (and Berkshire) got blown up on a DC Solar investment - www.renewableenergyworld.com/...
This serves as a reminder that investors in the space need to know what they're doing. Expertise is important and RE has that.

2. RE just signed on of their best deals (from my perspective) less than 30 days after they finished raising their $10m from green bonds - from speaking with Management they're not having any shortage of opportunities. By not limiting themselves to North America I think RE has a pretty long runway of opportunities.

3. I don't think Apollo would be getting in the space unless they thought there was a pretty long runway. Altius also has a pretty good track record of timing their entrance and exit into royalty spaces.

I'm sure there's a risk that governments get more involved making grants to projects, more people get involved in the space, etc. But for now they don't seem to be having any issues finding deals and it wasn't risky enough to keep Apollo and Altius out of the space.
great write-up. I was invested in then until a recent run up and then it stagnated and I got out.

I wish they offered DRIP which would've kept my interest. alas I left and an eyeing a reentry.

gl to all longs here
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