Nextera Energy Partners LP

NEP Details

Nextera Energy Partners LP (NYSE: NEP) is a growth-oriented limited partnership company that agreed to acquire, manage, and own contracted clean energy projects. As of 31 December 2020, the company owned a controlling, non-economic general partner interest and a 42.8% limited partner interest in NEP OpCo.

Result Performance – For the Second Quarter Ended 30 June 2021

• Operating revenue stood at $253 million in Q2FY21, a flat growth from Q2FY20 while increased to $499 million in H1FY21 versus $465 million in H1FY20. Texas pipelines service revenues grew by ~$9 million in Q2FY21 primarily related to higher revenues associated with a pipeline expansion project.
• Net loss stood at $202 million in Q2FY21 versus net profit of $127 million in Q2FY20. However, the company reported a net profit of $369 million in H1FY21 versus a net loss of $593 million in H1FY20.
• As of 30^th June 2021, the liquidity position stood at $2,342 million.

Key Data (Source: Company Reports) 

Recent Updates

• As per the release dated 25 August 2021, the company has completed its previously announced acquisition of a 391-megawatt (MW) portfolio of four operating wind assets located in California and New Hampshire.

Risks

Operation and maintenance of renewable energy projects and pipelines projects of the company consist of phenomenal risks that may result in unplanned power outages, decreased output or capacity, personal injury, or loss of life. Further, the business, financial condition, results of operations, and prospects could be materially adversely impacted by weather conditions. Also, the company relies on few renewable energy projects and pipelines in its portfolio for continued cash flows.

Outlook:

As per the Q2FY21 presentation, released on 23 July 2021, the company ventured into an agreement to acquire ~590 MW net interest in a long-term contracted renewables portfolio from Energy Resources. The company is expected to support growth anticipation of 12%-15% through at least 2024. Further, the company accomplished multiple financings to fund 2021 acquisitions and strengthen financing flexibility:

• ~$150 million upsize in 2020 convertible equity portfolio financing
• ~$500 million zero percent coupon convertible notes with restricted call to retain upside from up to 50% NEP unit price appreciation over three years
• ~$50 million in proceeds from modest issuances under ATM program

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Stock Recommendation:

The stock posted 6-months and 1-year returns of ~+16.9% and ~+40.4%, respectively. It is currently trading above the average 52-week high price of $88.295 and 52-week low price of $54.33.

The stock has been valued using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price which reflects a decline of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, considering a negative net margin of 79.8% in Q2FY21 versus positive net margin of 50.2% in Q2FY20 and decrease in EBITDA margin at 65.2% in Q2FY21 versus 71.5% in Q2FY20.

Considering the aforesaid facts, current trading level, and risks associated, we suggest investors to liquidate the stock. Hence, we give a “Sell” recommendation on the stock at the current market price of $82.94 per share as on 9:45 am Eastern Daylight Time, USA, as on 3^rd September 2021. 

Daily Price Chart

Source: REFINITIV, Note: The Purple Color Line Reflects RSI (14-Period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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