Wind Power: The Fundamentals in Arise Have Improved

Cliff notes:

  • Arise has refinanced their bond = less risk.
  • Demand for wind power projects among institutional investors has risen.
  • Valuation gap. Trades at half book value while competitor Eolus trades at book value. The size of their pipelines is the same.
  • The forward price curve for electricity has improved. Probably a function of the price of coal and carbon emission quotas rising throughout 2017 and continuing in 2018 laying a floor under the price of electricity.

Summary: The fundamentals have improved while the price of the stock has fallen to 12,50 SEK. I expect a rerating to occur and see fair value in the 18-19 SEK range.

3 thoughts on “Wind Power: The Fundamentals in Arise Have Improved

  1. 1) The stock price has fallen every year on the chart, why would it do anything different from a technical perspective?

    2) Is the company profitable? What is the free cash flow in 2012-2017 each year?

    3) What is the Enterprise Value currently? And debt to market cap ratio?

    4) What is the capital allocation policty? Any dividend or stock buyback?

    5) Are management actually trustworthy or shareholder friendly? Any insider buying?


    1. Good questions magoomagoo and thanks for your interest.

      1) I have no view when it comes to technicals. They have changed strategy focus to deleveraging the balance sheet and becoming asset light over time, so I am not sure the past can be used as an indication of what a likely future might look like. I think two project sales that are likely to come this year will drive the price higher towards the end of the year.

      2) FCF from starting in 2008 and till now in MSEK: -263, -687, -780, -622, -6, -80, 141, 287, 342, 73
      Those numbers reflect the new strategy and the company has been using the free cash flow to bring down debt significantly for the past three years.

      3) EV = 1150 MSEK. Debt to market cap: 2,6x. This is falling with each year that passes and that is a big part of the case = as it comes down and assets are sold off there will likely be a repricing more in line with peers. The flip side is if coal and thereby electricity prices keep trending upward as has recently happened leverage will work _for_ them instead of against them which is what happened in the past. If you believe the future will be like the past Arise is not going to outperform.

      Capital allocation: A strict focus on bringing down debt. No dividends or buybacks are likely until debt ratios are more in line with their long term strategy IMO. Perhaps that will change if they land a huge project sale above the 150MW range, but that is at least 1-2 years out.

      5) The CEO bought 8000 shares in december and participated in the convertible bond issue last year so some skin in the game but not a huge amount unfortunately. CEO and CFO ownership is an argument against the case. The founders have a significant amount and some are still involved in management decisions. Trustworthy and shareholder friendly? So far they have delivered on what they have said they would do. Would I want the selling of assets to be at a quicker pace? Yes!


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