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IPP's


Packer16
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Packer16  --  You must be spying on my web searches  :)

 

As for IPPs, I am of the belief that there are indeed some interesting value candidates in the arena currently. However, as you are probably aware, NRG was a takeover candidate not too long ago. Outside the takeover aspect to NRG, I think time is well spent on other higher quality participants in this group. If you look at the adjusted book values of some of these higher quality companies, you will see that they are near or only slightly above book value but have very respectable ROE numbers and payout an increasing dividend. I have been buying, but do not have a full position yet as I have not finished my DD yet.

 

Side note - Nice insight on your radio call and I have been buying there too!

 

 

Cheers

JEast

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I believe Lou Simpson owns NRG.  

 

I like NRG for the long term, although I don't currently have a position in the company.  Their earnings are levered to nat gas prices, but they are diversifying away from this by buying and constructing alt energy plants and through the Reliant acquisition.  They are very good with disclosure, and their executives are focused on ROIC.  They have a big presence in ERCOT, and they are working with Houston city officials to make the city a testing ground for electric vehicles.  In general, they are very involved in the politics of energy and carbon.

 

I think they are trying to be sort of like Brookfield in their joint venture approach to new projects.  I kind of think of NRG as a merchant generation-focused private equity company.  Oh, and the executives have implied that they would be a good acquisition target for a large European utility holding company in a couple of years.

 

 

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Two main things have been weighing on NRG's stock lately: Natural Gas is very low so margins are squeezed (in ERCOT particularly, the price of power is defined by the least efficient (gas) plant - so any one who ones base load (Nuclear or Coal) or efficient gas plants makes a killing).  This low gas is also the reason why Energy Future Holding has been downgraded tons of times lately, and its bonds price in a near-certain bankruptcy; remember - WEB owns (owned?) ~$2B worth.

The other things that has weighed significantly on NRG's stock price is the nuclear investment discussion with the city of San Antonio.  They were supposed to do a JV but the new mayor, Castro, balked when he heard that the price was going to be significantly higher than original estimates.  Things appear better now, San Antonio will likely retain some ownership (say 5%) while NRG and Mitsubishi are looking for another co-investor.

 

I agree the company seems to be very well managed; they literally stole Reliant Energy (the 2nd largest electric retailer in ERCOT) last year, and already made more money off of its margins than the purchase price.  I like the company, and think the stock is getting very cheap.  Ultimately though, the stock won't go up unless one of three things happen: (1) Nat Gas goes back up to the $6-$8 range; (2) the nuclear investment gets more clarity; or (3) someone tries to buy the company like Exelon did last year.

 

 

Disclosure: I have made good money off NRG and a couple of other players (TXU, CEG, RRI) in the past couple of years but am not holding any stock in the industry at the moment.

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This low gas is also the reason why Energy Future Holding has been downgraded tons of times lately, and its bonds price in a near-certain bankruptcy; remember - WEB owns (owned?) ~$2B worth.

 

Hmm... PIK bonds trading at $0.70 on the dollar doesn't seem to imply that to me... certainly stressed, but i'll bet they roll forward.  I do wish the EF and Texas Comp bonds were trading like bankruptcy was imminent... I'd be game.

 

Ben

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JEast --

 

Thx for the SSW insight.  I was able to switch some of my nearly fully valued triple-net lease REIT in to this undervalued income play.  If you like the radios, you may also want to check out some of the smaller cable plays like SURW, LNET and MCCC (although the later has alot of debt its cost is incredibly cheap (6%)). 

 

In looking at some of the other IPPs, it appears that they all trading at pretty tight MVIC/MW value of $480 - $515 except Mirant and RRI (which on the $185 to $220/MW) range primarily due their high coal exposure.  NRG does the best job of converting MWs to EBITDA.  One of the key uncertainties is what is a coal plant worth and what will be the effect of potential global warming legislation.

 

Packer

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