IPO Report: Abengoa Yield plc (ABY)

Francis Gaskins |

Abengoa Yield plc (ABY) will own, manage and acquire renewable energy, conventional power and electric transmission lines and other contracted revenue-generating assets. It is headquartered in Brentford, United Kingdom.

Six other companies are scheduled for the week of June 9, 2014.  The complete IPO calendar is available at IPOpremium.

The manager and joint managers are Citi, BofA Merrill Lynch, Canaccord Genuity, HSBC Corporation, RBC Capital Markets, Banco Santander.  SEC filings

ABYscheduled a $601 million IPO with a market capitalization of $2.08 billion at a price range midpoint of $26 for Friday, June 13, 2014 on the Nasdaq.

ABY IPO Overview

ABY will own, manage and acquire renewable energy, conventional power and electric transmission lines and other contracted revenue-generating assets, initially focused on North America (the United States and Mexico) and South America (Peru, Chile, Uruguay and Brazil), as well as Europe (Spain).

The two assets in the US are solar plants, and are therefore not subject to EPA's cap & trade policies designed to disable coal plants.

The initial yield at the price range mid-point of $26 is 4% projected for the 12 months ended June '15, and expected to grow to 6.5% for the 12 months ended June '16. 

The parent currently yields 2.3%.  The average S&P 500 dividend yield is 1.88%.

Most spinoffs that pay a significantly higher dividend than their parent at least edge up on the IPO, perhaps because parent shareholders are buyers for the spin-offs' higher yield.

ABY expects to pay out 90% of cash available for distribution.

ABY Valuation

Glossary

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

 

2013 yr because seasonal

       

 

Abengoa Yield plc (ABY)

$2,080

3.5

38.5

1.1

-0.6

29%

 

             

 

ABY projected yield June '15

.

.

.

.

.

4.0%

 

ABY projected yield June '16

.

.

.

.

.

6.5%

 

             

 

Compare

           

 

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

 

2013 yr because seasonal

       

 

Abengoa Yield plc (ABY)

$2,080

3.5

38.5

1.1

-0.6

4.0%

 

             

 

Abengoa, S.A. - American Depositary Shares (ABGB)

$3,640

0.5

33.1

1.9

3.5

2.3%

 

             

 

NRG Yield (NYLD)*

$5,070

16.2

75.7

8.1

9.3

2.8%

 

*forcasting 20% dividend growth in 2014

     

 

Pattern Energy Group (PEGI)

$1,540

7.6

90.6

3.3

3.3

4.3%

 

             
                           

ABY IPO Conclusion

Positive, ABY should edge  up post-IPO.  Also should be ok to hold for the yield portion of a portfolio.

ABY Business

ABY is a dividend growth-oriented company formed to serve as the primary vehicle through which Abengoa, S.A. ($ABGB), or Abengoa, will own, manage and acquire renewable energy, conventional power and electric transmission lines and other contracted revenue-generating assets, initially focused on North America (the United States and Mexico) and South America (Peru, Chile, Uruguay and Brazil), as well as Europe (Spain).

In the future, ABY intends to expand this presence to selected countries in Africa and the Middle East.

ABY believes it is well positioned to be a premier company for investors seeking a total return based on stable and growing dividend income from a diversified portfolio of low-risk, high-quality assets, and for investors with a key objective of accretive dividend growth.

ABY intends to take advantage of favorable trends in the power generation and electric transmission sectors globally, including energy scarcity and a focus on the reduction of carbon emissions.

To that end, ABY believes that its cash flow profile, coupled with its scale, diversity and low-cost business model, will offer it a lower cost of capital than that of a traditional engineering and construction company or independent power producer and provide it with a significant competitive advantage with which to execute its growth strategy.

With this business model, ABY’s objective is to pay a consistent and growing cash dividend to holders of its shares that is sustainable on a long-term basis.

Payout ratio target

ABY expects to target a payout ratio of 90% of its cash available for distribution and will seek to increase such cash dividends over time through organic growth and as it acquires assets with characteristics similar to those in its current portfolio. ABY will focus on high-quality, newly-constructed and long-life facilities with creditworthy counterparties that it expects will produce stable, long-term cash flows.

11 Assets post IPO

Upon consummation of this offering, ABY will own eleven assets, comprising 710 MW of renewable energy generation, 300 MW of conventional power generation and 1,018 miles of electric transmission lines and an exchangeable preferred equity investment in ACBH.

Each of the assets ABY owns has a project-finance agreement in place.

ABY's project-level debt was approximately $2,830 million as of March 31, 2014. When ABY refers to these assets as assets or being owned by ABY throughout the prospectus, ABY means that they will be transferred to ABY by Abengoa and owned by ABY immediately prior to the consummation of the offering

ABY Dividend Policy

ABY intends to pay a regular quarterly dividend in U.S. dollars to its shareholders starting in the third quarter of 2014. ABY’s quarterly dividend will initially be set at $0.2592 per share, or $1.04 per share on an annualized basis, and the amount may be changed in the future without advance notice.

The annualized yield at the price range of $26 mid-point is 4%.

Intellectual Property

ABY will enter into a licensing agreement with Abengoa pursuant to which Abengoa will grant ABY a non-exclusive, royalty-free license to use the name “Abengoa” and the Abengoa logo. Other than under this limited license, ABY will not have a legal right to use the “Abengoa” name or the Abengoa logo.

Competition for 

ABY competes based on the location of its assets and ownership of portfolios of assets in various countries and regions; however, because its assets typically have 20- to 30-year contracts, competition with other asset operations is limited until the expiration of the PPAs.

Power generation and transmission are highly regulated businesses in each country in which ABY  operates and are currently highly fragmented and have a diverse industry structure.

ABY’s  competitors have a wide variety of capabilities and resources. ABY’s competitors include, among others, regulated utilities and transmission companies, other independent power producers and power marketers or trading companies and state-owned monopolies.

5% stockholders

Abengoa indirectly owns all of ABY shares.

Use of proceeds

ABY expects to net $568 million from its IPO. Proceeds are allocated as follows:

distribute all of the net proceeds from this offering, less $30 million to strengthen its liquidity position, to Abengoa, as part of the consideration paid to Abengoa in connection with the Asset Transfer.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ABGB Abengoa S.A. ADR (Sponsored) Repstg Cl B Shs n/a n/a n/a 0
EBDC Ebank Fincl Svcs Inc 0.00 0.00 0.00 0

Comments

Emerging Growth

Lomiko Metals Inc.

Lomiko Metals Inc is an exploration stage company. It is engaged in the acquisition, exploration and development of resource properties. Its projects include Vines Lake project and Quatre - Milles…

Private Markets

D-Wave

D-Wave Systems is the first quantum computing company. Its mission is to integrate new discoveries in physics, engineering, manufacturing, and computer science into breakthrough approaches to computation to help solve…

Santo Diablo Mezcal

Santo Diablo Mezcal has been created to capitalize on a boom sector of the beverage market currently full of many small unmemorable products by producing one sexy, household, easily recognizable…