cmlber Posted October 30, 2015 Share Posted October 30, 2015 I would say the barriers to entry are relationships, reputation, and scale, probably in that order. In emerging markets, it takes years to develop the relationships with the decision makers. In developed markets, the utility customers really have no incentive to care about price, so it's probably more about relationships and reputation. Their returns on capital are regulated, so if they spend less they just get a lower markup on their cost when they sell power to consumers. For large customers like Walmart, they don't want to call the local guy in 5,000 markets, it's easier to just have a relationship with someone reputable like SUNE. There are also clearly economies of scale, although SUNE is only 2.5% of the market, so idk how this can be that big of an advantage. In the long run, none of these will keep competitors out, but for now, with the market doubling every year and tiny market penetration, competition on price should be pretty rational. But in the next 10 years they'll make multiples of the market cap. Link to comment Share on other sites More sharing options...
Palantir Posted October 30, 2015 Author Share Posted October 30, 2015 I think the biggest edge is that of the first mover, they've moved very quickly, very aggressively, and they've built out a lot of relationships with governments and municipalities. Speed here is key IMO. As an aside, on slide 12 of their investor day presentation, they note: Total MW 3,300 – 3,700 3rd Party 800 –1,000 Retained1 2,500 – 2,700 If I'm not mistaken, this is the total installed base, not simply the ones produced this year? AKA the retained MW of 2500-2700 is the total assets they should have by YE 2016? Link to comment Share on other sites More sharing options...
awindenberger Posted October 30, 2015 Share Posted October 30, 2015 I think the biggest edge is that of the first mover, they've moved very quickly, very aggressively, and they've built out a lot of relationships with governments and municipalities. Speed here is key IMO. As an aside, on slide 12 of their investor day presentation, they note: Total MW 3,300 – 3,700 3rd Party 800 –1,000 Retained1 2,500 – 2,700 If I'm not mistaken, this is the total installed base, not simply the ones produced this year? AKA the retained MW of 2500-2700 is the total assets they should have by YE 2016? Nope, this is actually their plan for just 2016. They've expanded at insane levels and are going to do it one more year. I imagine that in 2017 we'll see things slow down a lot. I'd be very impressed if they saw any growth at all from 2016 levels. Link to comment Share on other sites More sharing options...
johnny Posted October 31, 2015 Share Posted October 31, 2015 I'm assuming projects dropped into TERP count as retained for these purposes, in keeping with the accounting consolidation? Link to comment Share on other sites More sharing options...
Palantir Posted November 4, 2015 Author Share Posted November 4, 2015 I think the biggest edge is that of the first mover, they've moved very quickly, very aggressively, and they've built out a lot of relationships with governments and municipalities. Speed here is key IMO. As an aside, on slide 12 of their investor day presentation, they note: Total MW 3,300 – 3,700 3rd Party 800 –1,000 Retained1 2,500 – 2,700 If I'm not mistaken, this is the total installed base, not simply the ones produced this year? AKA the retained MW of 2500-2700 is the total assets they should have by YE 2016? Nope, this is actually their plan for just 2016. They've expanded at insane levels and are going to do it one more year. I imagine that in 2017 we'll see things slow down a lot. I'd be very impressed if they saw any growth at all from 2016 levels. That is insane. So does that mean that they will generate retained CAFD of $378-408M just from those 3700MW delivered? AKA the actual CAFD will be higher (2016+2015+2014 etc)? Link to comment Share on other sites More sharing options...
Palantir Posted November 4, 2015 Author Share Posted November 4, 2015 I'm curious about how they're deriving the retained CAFD. I get that EBITDA is derived from GM-Opex. That said, the GM is when these assets are sold to a third party, but when they retain that asset on their B/S, why would the GM calculation be relevant? AKA, they're not selling anything, so how can we derive CAFD from Revenue? Perhaps it is that they are selling to an associated entity, such as a warehouse? Link to comment Share on other sites More sharing options...
awindenberger Posted November 5, 2015 Share Posted November 5, 2015 I'm working through analyzing SUNE and its yieldco's, TERP and GLBL. They all look like a great deal at current prices, but I'm not done confirming that opinion. Link to comment Share on other sites More sharing options...
Palantir Posted November 9, 2015 Author Share Posted November 9, 2015 Tonight is the night. My avg cost is about $10. Let's see what happens... Link to comment Share on other sites More sharing options...
awindenberger Posted November 10, 2015 Share Posted November 10, 2015 Tonight is the night. My avg cost is about $10. Let's see what happens... I think the market has it totally wrong on SUNE. I thought the reports from all three company's were reasonable to solid, so really confused to see all the tanking going on today. Link to comment Share on other sites More sharing options...
Palantir Posted November 10, 2015 Author Share Posted November 10, 2015 My new investment idea: light your money on fire. Link to comment Share on other sites More sharing options...
KJP Posted November 10, 2015 Share Posted November 10, 2015 Tonight is the night. My avg cost is about $10. Let's see what happens... I think the market has it totally wrong on SUNE. I thought the reports from all three company's were reasonable to solid, so really confused to see all the tanking going on today. Can you bridge from GAAP to the metrics the company touts? Link to comment Share on other sites More sharing options...
Packer16 Posted November 10, 2015 Share Posted November 10, 2015 What do you guys think of this contrarian view on SUNE: http://valueandopportunity.com/2015/10/13/sunedison-sune-deja-vu-all-over-again/ Does anyone know the impact on the valuation if European rates of return appear here in the US? Packer Link to comment Share on other sites More sharing options...
Palantir Posted November 10, 2015 Author Share Posted November 10, 2015 Which renewable projects have 4-6% IRRs though - solar or wind? Utility scale or industrial or DG? What is the geography? Plus a big chunk of the future market is in EMs with diff characteristics. Link to comment Share on other sites More sharing options...
sampr01 Posted November 10, 2015 Share Posted November 10, 2015 What do you guys think of this contrarian view on SUNE: http://valueandopportunity.com/2015/10/13/sunedison-sune-deja-vu-all-over-again/ Does anyone know the impact on the valuation if European rates of return appear here in the US? Packer Hi Packer What is your take on SUNE and its joint ventures in developing markets esp India. Thanks Link to comment Share on other sites More sharing options...
CONeal Posted November 11, 2015 Share Posted November 11, 2015 What do you guys think of this contrarian view on SUNE: http://valueandopportunity.com/2015/10/13/sunedison-sune-deja-vu-all-over-again/ Does anyone know the impact on the valuation if European rates of return appear here in the US? Packer He covers some very important points the main one for me is SUNE needing to constantly pass off projects to TERP and GLBL. Funding for those stocks have pretty much closed and the GLBL ipo didn't gain the interest they were hoping for. SUNE is having to keep the projects on their books thus clogging up the pipeline already. SUNE needs liquidity to operate and when liquidity freezes up you see the problems with the structure they are trying to run. India is a great market for them to go after as they have spent alot of time developing the relationships in that market since it could be a gold mine. Link to comment Share on other sites More sharing options...
cmlber Posted November 11, 2015 Share Posted November 11, 2015 What do you guys think of this contrarian view on SUNE: http://valueandopportunity.com/2015/10/13/sunedison-sune-deja-vu-all-over-again/ Does anyone know the impact on the valuation if European rates of return appear here in the US? Packer He covers some very important points the main one for me is SUNE needing to constantly pass off projects to TERP and GLBL. Funding for those stocks have pretty much closed and the GLBL ipo didn't gain the interest they were hoping for. SUNE is having to keep the projects on their books thus clogging up the pipeline already. SUNE needs liquidity to operate and when liquidity freezes up you see the problems with the structure they are trying to run. India is a great market for them to go after as they have spent alot of time developing the relationships in that market since it could be a gold mine. SUNE doesn't need to pass off projects to TERP and GLBL. They can sell all the projects to third parties at a very attractive margin and through doing so on only ~50% of their projects in 2016 the guidance is to generate $494m in cash flow (pre investments in working capital). The projects they retain right now they drop into warehouse facilities which essentially buy the projects at a very small margin but TERP/GLBL maintains call rights on the projects for long periods of time (5 years to basically forever depending on the vehicle) so that they can drop them down to TERP or GLBL at some point when the yieldco space matures. If it doesn't and they don't drop them down, the warehouse just keeps them and the warehouse equity investors are happy to own the assets forever. I was pretty amazed by the drop today. I listened to the call and thought there was nothing unexpected, no idea what the market reacted to... Link to comment Share on other sites More sharing options...
cmlber Posted November 11, 2015 Share Posted November 11, 2015 What do you guys think of this contrarian view on SUNE: http://valueandopportunity.com/2015/10/13/sunedison-sune-deja-vu-all-over-again/ Does anyone know the impact on the valuation if European rates of return appear here in the US? Packer At $32, this mattered. At this price, yields dropping to 4-6% would be a gigantic catalyst for the stock. SUNE would be worth many multiples of the current stock price in this scenario. Think about it, they'll be investing ~$7 billion in capital into projects yielding ~9% unlevered IRRs in 2016. If someone in the market was willing to buy this for a 4.5% iRR (which they must be in order for someone to be willing to develop this for a 4.5% IRR), they created $7 billion in value (market cap $2 billion) in 2016. And they've got call rights on huge amounts of projects in warehouse facilities with IRRs closer to 9%, so they'd call all those and realize multiples of the stock price on those call rights. And the projects already in TERP and GLBL would be worth substantially more than current prices (double probably). Link to comment Share on other sites More sharing options...
KJP Posted November 11, 2015 Share Posted November 11, 2015 SUNE doesn't need to pass off projects to TERP and GLBL. They can sell all the projects to third parties at a very attractive margin Has SunEdison actually been able to do this in the past, or is this what management is claiming they will be able to do in the future? I'm not an expert on the company, but this does not seem consistent with the DevCo's recent gross margins. Link to comment Share on other sites More sharing options...
cmlber Posted November 11, 2015 Share Posted November 11, 2015 SUNE doesn't need to pass off projects to TERP and GLBL. They can sell all the projects to third parties at a very attractive margin Has SunEdison actually been able to do this in the past, or is this what management is claiming they will be able to do in the future? I'm not an expert on the company, but this does not seem consistent with the DevCo's recent gross margins. Yes, they have been able to do this in the past (and keep in mind SUNE is ~2% of the market, so the other 98% is getting sold to someone other than TERP). What doesn't seem consistent about that and DevCo gross margins? Link to comment Share on other sites More sharing options...
CONeal Posted November 11, 2015 Share Posted November 11, 2015 SUNE doesn't need to pass off projects to TERP and GLBL. They can sell all the projects to third parties at a very attractive margin Has SunEdison actually been able to do this in the past, or is this what management is claiming they will be able to do in the future? I'm not an expert on the company, but this does not seem consistent with the DevCo's recent gross margins. Yes, they have been able to do this in the past (and keep in mind SUNE is ~2% of the market, so the other 98% is getting sold to someone other than TERP). What doesn't seem consistent about that and DevCo gross margins? Are you sure about that? I've seen where they have had agreements to sell some projects upfront to the companies having the projects built. I have not seen them sell a project where they were initially going to hold it or pass it off to TERP and then be able to sell it. Link to comment Share on other sites More sharing options...
cmlber Posted November 11, 2015 Share Posted November 11, 2015 SUNE doesn't need to pass off projects to TERP and GLBL. They can sell all the projects to third parties at a very attractive margin Has SunEdison actually been able to do this in the past, or is this what management is claiming they will be able to do in the future? I'm not an expert on the company, but this does not seem consistent with the DevCo's recent gross margins. Yes, they have been able to do this in the past (and keep in mind SUNE is ~2% of the market, so the other 98% is getting sold to someone other than TERP). What doesn't seem consistent about that and DevCo gross margins? Are you sure about that? I've seen where they have had agreements to sell some projects upfront to the companies having the projects built. I have not seen them sell a project where they were initially going to hold it or pass it off to TERP and then be able to sell it. A) Before TERP/GLBL launched, selling projects to 3rd parties was the only thing they did, B) That's what the warehouses are, buyers of projects that were originally intended to go to TERP (although they only pay the development cost because they are also giving TERP a forever call option), C) They sold 106 MW this last quarter to 3rd parties, at very attractive margins, most of which they originally intended to drop down to TERP, D) In the past when sentiment was much different, people would ask on the calls why they bother selling any projects to 3rd parties at all, and management would always say the projects they sell are the ones they wouldn't want to own, I think they even referred to them as "defects" (i.e. they are worse on average than the ones they retain), so there is no reason to think, imo, they wouldn't get the same margin or better selling the retained projects. Link to comment Share on other sites More sharing options...
Palantir Posted November 11, 2015 Author Share Posted November 11, 2015 Yes, in fact in 2016, they do not plan to drop any projects to TERP and GLBL. The warehouse financing meets all needs. There's an investor slide that describes it. Link to comment Share on other sites More sharing options...
KJP Posted November 11, 2015 Share Posted November 11, 2015 SUNE doesn't need to pass off projects to TERP and GLBL. They can sell all the projects to third parties at a very attractive margin Has SunEdison actually been able to do this in the past, or is this what management is claiming they will be able to do in the future? I'm not an expert on the company, but this does not seem consistent with the DevCo's recent gross margins. Yes, they have been able to do this in the past (and keep in mind SUNE is ~2% of the market, so the other 98% is getting sold to someone other than TERP). What doesn't seem consistent about that and DevCo gross margins? I may not understand SunEdison's accounting. If it was selling projects to third parties at "attractive margins," wouldn't the Renewable Energy segment be generating significant gross profits and gross margins? In Q3 the Renewable Energy segment's gross profit was zero; for the last nine months gross margin is around 4%. See http://investors.sunedison.com/phoenix.zhtml?c=106680&p=irol-newsArticle&ID=2110893 If the very profitable sales to third parties don't show up in the Renewable Energy segment's gross margins, then where do they show up? Link to comment Share on other sites More sharing options...
KJP Posted November 11, 2015 Share Posted November 11, 2015 SUNE doesn't need to pass off projects to TERP and GLBL. They can sell all the projects to third parties at a very attractive margin Has SunEdison actually been able to do this in the past, or is this what management is claiming they will be able to do in the future? I'm not an expert on the company, but this does not seem consistent with the DevCo's recent gross margins. Yes, they have been able to do this in the past (and keep in mind SUNE is ~2% of the market, so the other 98% is getting sold to someone other than TERP). What doesn't seem consistent about that and DevCo gross margins? Are you sure about that? I've seen where they have had agreements to sell some projects upfront to the companies having the projects built. I have not seen them sell a project where they were initially going to hold it or pass it off to TERP and then be able to sell it. A) Before TERP/GLBL launched, selling projects to 3rd parties was the only thing they did, B) That's what the warehouses are, buyers of projects that were originally intended to go to TERP (although they only pay the development cost because they are also giving TERP a forever call option), C) They sold 106 MW this last quarter to 3rd parties, at very attractive margins, most of which they originally intended to drop down to TERP, D) In the past when sentiment was much different, people would ask on the calls why they bother selling any projects to 3rd parties at all, and management would always say the projects they sell are the ones they wouldn't want to own, I think they even referred to them as "defects" (i.e. they are worse on average than the ones they retain), so there is no reason to think, imo, they wouldn't get the same margin or better selling the retained projects. I'm trying to play catch up here. Did SunEdison break out the margins on the 106 MW sold to third parties? Link to comment Share on other sites More sharing options...
cmlber Posted November 11, 2015 Share Posted November 11, 2015 SUNE doesn't need to pass off projects to TERP and GLBL. They can sell all the projects to third parties at a very attractive margin Has SunEdison actually been able to do this in the past, or is this what management is claiming they will be able to do in the future? I'm not an expert on the company, but this does not seem consistent with the DevCo's recent gross margins. Yes, they have been able to do this in the past (and keep in mind SUNE is ~2% of the market, so the other 98% is getting sold to someone other than TERP). What doesn't seem consistent about that and DevCo gross margins? I may not understand SunEdison's accounting. If it was selling projects to third parties at "attractive margins," wouldn't the Renewable Energy segment be generating significant gross profits and gross margins? In Q3 the Renewable Energy segment's gross profit was zero; for the last nine months gross margin is around 4%. See http://investors.sunedison.com/phoenix.zhtml?c=106680&p=irol-newsArticle&ID=2110893 If the very profitable sales to third parties don't show up in the Renewable Energy segment's gross margins, then where do they show up? This is why the stock gets beaten down at every earnings announcement. People focus on GAAP, which more or less reflects economic reality in 99% of cases, but not in this one, and infer SUNE is a crappy business. In Q3, they sold 106 MW but retained 534MW. So the operating expenses associated with developing 640MW show up as expenses, but GAAP only records the revenue associated with the sale of the 106MW. The 534MW retained will result in very modest amounts of revenue spread out over 20 years (which has a positive NPV). The result is that for a company growing MWs so rapidly, the operating expenses mask the economic value of the developed MWs. If you look at the presentation from today, they disclosed $0.36/watt in gross margins on the 3rd party sales. So, if in 2016 they sold all 3,700 MWs developed, there would be $1.3 billion in gross profit. Link to comment Share on other sites More sharing options...
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