Category: Financial Markets
Business Strategy & Outlook:
NextEra Energy’s high-quality regulated utility in Florida and fast-growing renewable energy business give investors the best of both worlds: a secure dividend and industry-leading renewable energy growth potential. NextEra’s regulated utility, Florida Power & Light, benefits from constructive regulation that offers high allowed returns, little regulatory lag, and low customer rates. Florida’s strong economy and population growth through 2026. The utility plans to invest $32 billion to $34 billion from 2022-25, supporting 9% rate base growth. Growth opportunities include continued solar generation build out, storm hardening investments, and transmission and distribution infrastructure. The recent Florida rate case outcome supports our view that FP&L enjoys industry-leading constructive regulation. The outcome allows for a target 10.6% allowed return on equity, one of the highest among its peer group, with a range of 9.7%-11.7%. The rate case outcome also supports hydrogen, electric vehicle programs and storm hardening.
The company’s highly contracted competitive energy business, NextEra Energy Resources, has proved to be a best-in-class renewable energy operator and developer. The company was an early adopter of wind generation, building a competitive advantage by securing some of the country’s most desirable locations and locking in 20-year contracts with price escalator clauses. NextEra’s current plans shift the focus to solar. Roughly half its planned renewable energy growth through 2026 will be solar, with the remaining a mix of wind and energy storage. Higher costs could threaten near-term renewable energy development, but high fossil fuel costs have helped maintain renewable energy’s relative economic advantage. Management’s continued execution on its NEER development program gives us confidence that NextEra will deliver on its 28 gigawatts to 37 GW development target range in 2022-25. Investments in green hydrogen, transmission, and water utilities present additional growth opportunities.
Financial Strengths:
We forecast that NextEra will invest over $90 billion through 2026, requiring it to be a frequent debt issuer. We expect NextEra to continue to tap project financing, including tax equity, to build out its renewable energy fleet. The company has manageable long-term debt maturities, and we anticipate that it will be able to refinance its debt as it comes due and maintain its debt/capital ratio. We expect the firm to tap the equity markets in line with its current capital structure. We expect total debt/EBITDA to remain near 5.0 times. Even with its large capital expenditure program, NextEra maintains a strong balance sheet, particularly for an integrated electric utility, and an investment-grade credit rating. We expect debt/capital to average 60% through our 2026 forecast. Interest coverage should average over 5.5 times. NextEra has ample cash liquidity and borrowing capacity available under its master revolving credit facility. We believe NextEra’s dividend is well covered with its regulated utilities’ earnings. We forecast 9% average dividend increases through 2026 with the payout ratio remaining around 60%.
Bulls Say:
- FP&L operates in one of the most constructive regulatory environments with numerous capital investment opportunities.
- NEER has benefited from renewable energy federal tax credits, but state renewable portfolio standards, corporate purchases, and attractive economics are now driving investments in renewable energy.
- Management’s long runway of capital investment opportunities support our industry-leading 9% annual earnings growth outlook from 2022-26.
Company Description:
NextEra Energy’s regulated utility, Florida Power & Light, distributes power to more than 5 million customers in Florida. FP&L contributes more than 60% of the group’s operating earnings. The renewable energy segment generates and sells power throughout the United States and Canada. Consolidated generation capacity totals more than 50 gigawatts and includes natural gas, nuclear, wind, and solar assets.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook:
Vistra Energy’s emergence from the Energy Future Holdings bankruptcy in 2016 has been a success for the most part. The company has produced solid returns through volatile commodity markets while shifting its business mix toward retail and clean energy. The only significant bump in the road has been winter storm Uri that hit Texas in February 2021, causing more than $2 billion of gross losses. As an independent power producer and retail energy supplier, Vistra has a much different risk profile than most utilities. Vistra is subject to the whims of the U.S. electricity and natural gas markets. Energy market volatility and excessive leverage led EFH into bankruptcy just seven years after several high-profile investors closed a $45 billion leveraged buyout, the largest ever at the time. Even Warren Buffett reportedly lost nearly $900 million in the deal. Vistra’s clean post-bankruptcy balance sheet allowed it to acquire Dynegy in 2018 for $2.27 billion, more than tripling the size of its generation fleet and introducing Vistra to power markets outside Texas, notably the Midwest and Northeast. The rock-bottom price Vistra paid and cost synergies have made the deal value-accretive.
Vistra produces substantial free cash flow before growth, given minimal core investment needs. Management is expanding the retail energy business to hedge its wholesale generation market exposure and is investing in clean energy projects like utility-scale solar and batteries. We expect this strategy to continue as Vistra tries to dilute its fossil fuel exposure. Retail supply earnings could climb to one third of consolidated earnings on a normalized basis after Vistra’s recent acquisitions and continued customer growth. This could result in more stable cash flows, a durable dividend, and regular share buybacks if management executes its strategy. Vistra’s largest shareholders, notably Brookfield and Apollo, were creditors as Vistra went through bankruptcy. Both started exiting their positions in 2018 and 2019, and we expect that selling to continue.
Financial Strengths:
After the setback from the Texas winter storm losses in February 2021, Vistra’s quest to earn investment-grade credit ratings and reach 2.5 net debt/EBITDA stalled. However, the company remains in a solid financial position with plenty of liquidity. Management has shifted its focus toward returning capital to shareholders through stock buybacks and dividends rather than achieving investment-grade credit ratings immediately. Vistra’s $2 billion preferred issuance in 2021 with an 8% dividend floor all but ensures it will take several more years to earn investment-grade ratings. We think Vistra generates enough cash flow to execute management’s five-year, $6 billion stock-repurchase plan and dedicate $300 million annually for the dividend. However, we consider this a base plan that could change if Vistra sees small acquisition opportunities or needs financial flexibility to handle a downturn. The board authorized a $2 billion share-repurchase plan in late 2021, replacing a largely unused $1.5 billion plan from 2020. We also expect Vistra to invest nearly $2 billion in clean energy projects during the next few years. The combination of stock buybacks and a $300 million annual allocation to the dividend means the dividend could top $1.00 per share by 2025, up from $0.50 when the board initiated the dividend in 2019 and surpassing management’s initial 6%-8% annual growth target. Vistra exited bankruptcy in 2016 with just $4.5 billion of medium-term debt. Consolidated debt grew to $11 billion after the 2018 Dynegy acquisition before Vistra began reducing its leverage.
Bulls Say:
- Vistra’s debt reduction in 2019-20 gives it financial flexibility to repurchase stock, raise the dividend, and invest in growth projects in 2022 and beyond.
- Despite a recent surge in gas prices, Vistra’s relatively new, efficient gas fleet allows it to earn higher margins than its peers with older, less-efficient power plants.
- The retail-wholesale integrated business model reduces risk and market transaction costs, allowing Vistra to be a low-cost provider, especially in its primary Texas market.
Company Description:
Vistra Energy emerged from the Energy Future Holdings bankruptcy as a stand-alone entity in 2016. Vistra is one of the largest power producers and retail energy providers in the U.S. It owns and operates 38 gigawatts of nuclear, coal, and natural gas generation in its wholesale generation segment after acquiring Dynegy in 2018. Its retail electricity segment serves 4.3 million customers in 20 states. Vistra’s retail business serves almost one third of all Texas electricity consumers.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Lithium Americas aims to become a low-cost pure-play lithium producer. The company has no current lithium sales volumes but is developing three resources that should eventually enter production, with the first project to enter production by the end of 2022. Cauchari-Olaroz and Pastos Grandes are brine resources located in northwestern Argentina. Thacker Pass is the company’s clay resource in the U.S. state of Nevada. As electric vehicle adoption increases, the maintained double-digit annual growth for lithium demand. Lithium Americas should benefit as there should be more than enough demand for company’s three resources to enter production and expand capacity over time.
At Cauchari-Olaroz, Lithium Americas owns 44.8% of the project, while Ganfeng, one of the world’s largest lithium producers, owns 46.7%. The remaining 8.5% stake is owned by JEMSE, an Argentina state-owned mining company. Once Cauchari-Olaroz enters production and begins ramping up volumes, the project should have a similar cost position as other Argentinean brines, such as the resources of narrow-moat Livent and Orocobre. The project plans to bring an initial 40,000 metric tons of capacity later this year, with plans for additional expansions. LAC owns 100% of the Pastos Grandes project. Located close to the Cauchari-Olaroz project in Argentina, Pastos Grandes is currently under development. The project aims to produce 24,000 metric tons per year. LAC also owns 100% of the Thacker Pass resource. The project faces legal opposition from environmental groups that could cause delays, however, the project will eventually enter production. Thacker Pass would be the first clay-based lithium resource to enter production globally. Currently, all lithium is produced from either brine (primarily in South America) or hard rock mining that produces spodumene (primarily in Australia) Thacker Pass plans on bringing on an initial 40,000 metric tons of capacity, with additional expansion plans.
Financial Strengths
Lithium Americas is in a solid financial position. As of March 31, Lithium Americas had $290 million in total debt and $492 million in cash on its balance sheet. While debt levels remain low, Lithium Americas will need to contribute nearly $67 million for its share of capital expenditures to finish construction of the Cauchari-Olaroz project. However, the company has sufficient cash to manage these payments. Lithium Americas can also access $75 million in undrawn cash from its loan and credit facilities. LAC has refinanced its construction facility into convertible long-term debt. With a conversion rate of $47.10 per share, which is slightly above the value estimate, the financing term as favorable for existing shareholders. As Cauchari-Olaroz enters production in 2022, the project should begin to generate positive cash flows in subsequent years, allowing the project to fund capacity expansions. LAC should also be able to use some of its share of profits to invest in the construction of the Thacker Pass project. Management is exploring bringing in a partner on the project and applied to secure low-cost debt financing from the U.S. Department of Energy for 50% to 60% of the Phase 1 capital expenditures. If the company decides to remain the sole owner of the project and secures low-cost debt, it could be funded through equity issuances. As LAC progresses on developing the Pastos Grandes project, the company will likely have to issue additional equity or debt, or find a partner, in order to fund construction. In February, LAC announced the company is considering a separation into two companies, with assets divided based on geography. One company would hold the Argentina-based Cauchari-Olaroz and Pastos Grandes assets. The other company would hold the U.S.-based Thacker Pass assets.
Bulls Say
- Through the ownership of three large lithium resources, Lithium Americas should be able to enter the lithium industry and become a major producer globally with one of the lowest-cost lithium carbonate resources and one of the largest rock-based resources globally.
- As a lithium pure play, Lithium Americas is well positioned to increase profits from EV growth through lithium batteries.
- Lithium prices will remain well above the marginal cost of production through at least the remainder of the decade, leading to excess profits and return on invested capital for Lithium Americas.
Company Description
Lithium Americas is developing three lithium production assets, two brine resources located in northwestern Argentina and a clay resource in Nevada, U.S. While the company has no current lithium production, the first Argentina resource, Cauchari-Olaroz, to enter production in late 2022. The Nevada project, Thacker Pass, to enter production in the middle of the 2020s and the second brine resource, Pastos Grandes, to enter production in the late-2020s. Lithium Americas plans for all three resources to be fully integrated, selling into the lithium chemical market. The company is also exploring separating into two companies, with assets divided by geography, an Argentina company and a U.S. company.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
