Category: Financial Markets
Business Strategy & Outlook
Duke Energy is one of the largest regulated utilities in the United States. Florida is Duke’s most constructive and attractive jurisdiction, with higher-than-average load growth and best-in-class regulation that allows for higher-than-average returns on equity, forward-looking rates, and automatic base-rate adjustments. The significant solar growth in the region and storm-hardening investments.
In North Carolina, Duke’s largest service territory, recent state legislation includes numerous provisions that improve the state’s regulatory ratemaking. The legislation allows multiyear rate plans up to three years, including increases for projected capital investments. Duke expects to file rate cases at both state subsidiaries later this year. Additionally, it allows for performance incentive mechanisms and usage-decoupled rates for residential customers, protecting utilities from underlying usage trends. The legislation also updates the state’s carbon-reduction targets, now aiming for a 70% reduction by 2030, and supports utilities’ efforts to play a critical role in the clean energy transition. Indiana remains constructive. Regulators approved a peer-average allowed return on equity. The subsidiary is allowed recovery for investments for renewable energy and future recovery on and of investments for coal ash remediation, with a forward-looking test year. The unit’s 20-year integrated resource plan calls for 7 gigawatts of renewables, 400 megawatts of energy storage, and 2.4 GW of natural gas generation. Duke’s $63 billion five-year capital investment plan is focused on clean energy, as the company works toward net-zero carbon emissions by 2050 and net-zero methane emissions by 2030. Management sees growth opportunities beyond its five-year forecast, with expectations for $70 billion-$75 billion of capital expenditures helping to support future rate base growth.
Management is transitioning Duke away from coal generation. The company, which has among the largest coal fleets in the industry, aims to reduce its coal fleet by up to 70% and install roughly 15 GW of renewable energy by 2030. The company plans to eliminate coal generation by 2035.
Financial Strengths
As per forecast $63 billion of capital investment over the next five years, which will require Duke to be a frequent debt issuer. The company has manageable long-term debt maturities. Duke will be able to refinance its debt as it comes due and maintain its debt/capital ratio by funding about half of its growth capital expenditures through debt issuance. The sale of a minority interest in Duke Energy Indiana helps reduce equity needs to fund this plan. The Duke’s total debt/EBITDA to remain around 5 times and its debt/capital ratio to remain in the mid-50s during the five-year forecast. Interest coverage should remain near 5 times. Duke has ample cash liquidity and borrowing capacity available under its master revolving credit facility. The Duke’s dividend is well covered with its regulated utilities’ earnings. There were always expected slower dividend growth for Duke. As per the expectations for 3.5% average annual dividend growth will represent a 64% payout based on 2026 earnings estimate. Duke’s liquidity position and cash flow generation should give investors’ confidence that it can maintain and increase its dividend.
Bulls Say
- Duke’s regulated utilities provide a stable source of earnings. The company’s large capital expenditure plan should drive rate base and earnings growth for the next several years. The management’s 5%-7% earnings growth target is achievable.
- The company operates in mostly constructive regulatory jurisdictions, which account for most of its revenue.
- Duke’s management team has focused on core regulated operations and moaty growth investments.
Company Description
Duke Energy is one of the largest U.S. utilities, with regulated utilities in the Carolinas, Indiana, Florida, Ohio, and Kentucky that deliver electricity to nearly 8 million customers. Its natural gas utilities serve more than 1.5 million customers. Duke operates in three major segments: electric utilities and infrastructure; gas utilities and infrastructure; and commercial renewables.
(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
Bloom Energy’s core product is its Bloom Energy Server, a distributed solution to meet commercial and industrial customers’ 24/7 power needs. Customer use cases vary, but typically prioritize reliability and emission reduction, and to a lesser extent cost savings. Bloom’s Energy Server is based on solid oxide fuel cell, or SOFC, technology and runs on natural gas, biogas, or hydrogen. Natural gas has historically been the dominant fuel, but one can expect greater emphasis on biogas and hydrogen in coming years. In comparison with other fuel cell companies, Bloom’s SOFC technology is best suited for stationary power applications.
Bloom’s growth strategy for its Energy Server product is to continually lower the cost of its product to allow for a broader customer base to adopt its solution. Historically, the vast majority of Bloom’s sales have come from four to five American states and South Korea. The company is looking to broaden its appeal both domestically and internationally. In order to achieve this, the company must lower the cost of its product, at which it has been successful over time. The cost of Bloom’s Energy Server has declined from approximately $6,000 per kilowatt at the time of its IPO in 2018 to below $2,500 in 2021 and the company expects roughly 10% per year cost reduction declines in the years ahead.
Bloom added to its product portfolio in 2021 with the introduction of its solid oxide electrolyzer for producing hydrogen. Many fuel cell providers such as Bloom have entered the electrolyzer market given synergies between fuel cell and electrolyze technology. Bloom expects to have a few pilot projects in 2022 before expecting broader commercial sales in 2023 and beyond. In contrast to competing electrolyze technologies that are expected to pair with renewable electricity, the Bloom’s solid oxide technology as best suited for nuclear-pairing applications. In the longer term, the company is also working on adapting its fuel cell technology for the marine end market. The high power needs of the marine industry could align well with solid oxide fuel cells, but view this opportunity as long-dated (late this decade).
Financial Strengths
The Bloom’s financial strength as fair. Current debt outstanding totals approximately $500 million and consists of both recourse and nonrecourse issuances. Recourse debt is composed primarily of $230 million of 2.5% convertible notes due August 2025 and $70 million of 10.25% senior secured notes due March 2027. Nonrecourse debt totals $235 million and pertains to Bloom’s power purchase agreement financing structures. In addition, the company has roughly $460 million of financing obligations associated with sale leaseback financing structures. Given the company’s limited size, one cannot believe further increases in recourse debt would be prudent. Bloom’s financial strength is supported by an additional $250 million equity commitment from SK Eco plant, which it must invest by December 2023 at a minimum share price of $23. The operating cash flow to remain negative in 2022 before turning modestly positive in 2023 as sales growth drives operating leverage. Future capital requirements consist largely of working capital and an expansion of the company’s manufacturing operations. The company has a 1-gigawatt expansion of capacity underway in Fremont, California, and plans to add 1 gigawatt every two to three years based on current expectations.
Bulls Say
- Bloom is a first-mover within the baseload distributed generation market.
- Bloom has made strides in extending the life of its fuel cells, which should improve its service margins in coming years.
- Bloom entry into the electrolyze market provides a large addressable market to leverage its technology.
Company Description
Bloom Energy designs, manufactures, sells, and installs solid-oxide fuel cell systems (“Energy Servers”) for on-site power generation. Bloom Energy Servers are fuel-flexible and can use natural gas, biogas, and hydrogen to create 24/7 electricity for stationary applications. In 2021, the company announced plans to leverage its technology and enter the electrolyze market. Bloom primarily sells its systems in the United States and South Korea.
(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.
