The World's #1 Renewable Energy Network for News, Information, and Companies.

Valuing Finavera's Wind Energy Deal With Pattern Reveals Buying Opportunity

On October 1st, following the failed sale of Finavera Wind Energy's (TSX-V:FVR, OTC:FNVRF) 77 MW Wildmare Wind Energy Project to Innergex Renewable Energy Inc (TSX:INE, OTC: INGXF), Finavera announced that it was in talks with three potential bidders and would review all offers for the company. Finavera did not have much choice in the matter: the proceeds of the Wildmare sale had been needed to repay an overdue note to GE.

While Finavera talked about its plans as a “Corporate Transaction,” most investors (including me) assumed the process would conclude with a sale of the company.  The stock promptly shot up approximately 70% from the 20-25 cent range where it had been trading to the 35-40 cent range in anticipation of a sale.

Market Reaction

As it happened, after reviewing the offers, Finavera decided to accept a financing deal and project purchase agreement from Pattern Renewable Energy Holdings Canada.   According to Finavera CEO Jason Bak in an interview, what sealed the deal was Pattern’s willingness to refinance the GE note immediately, and provide financing at 10% for project development going forward once shareholders approve the deal. While there were offers for outright purchase of the company on the table, none of the bidders would have been able to perform as quickly as Pattern and satisfy GE. As a result, Finavera’s board, which contains four of the company’s ten largest shareholders and collectively owns 35% of the company’s stock, chose to sign the deal with Pattern.

Since many investors had been anticipating an outright sale, the announcement of the deal sent some scurrying for the exit. Thin trading over the holidays compounded the problem, and Finavera’s stock plummeted from near $0.40, where it had been trading before the announcement, to the low 20 cent range, which created a tremendous buying opportunity. I personally nearly doubled my holdings on Thursday and Friday.

Valuation

While the Pattern deal does not provide immediate liquidity for shareholders, it does make the company much easier to value. Over the last year, investors’ biggest concern about Finavera has been the lack of financing, a problem which the Pattern deal will solve. In addition, the deal sets a price for Finavera’s project portfolio in British Colombia, to be paid when the projects reach financial close (i.e. all permits are in place and the project is ready for construction). Bak estimates that this will be achieved for the more advanced projects in 2013, and the later projects in 2014.

Hence, Finavera should receive approximately C$40 million for its projects from Pattern before the end of 2014, in addition to C$9.3 million for reaching financial close on its Cloosh wind farm in Ireland in 2013. Offsetting this against Finavera’s existing liabilities of C$18.3 million (about C$2-3 million of which Bak says are likely to be renegotiated) we have a net cash value of Finavera at the end of 2014 of about $30 million.  This assumes that the renegotiated liabilities and the residual value of Finavera’s 10% stake in the Cloosh project mostly cover ongoing development costs. With roughly 40 million diluted shares outstanding, that places the value of a Finavera share at roughly C$0.75 at the end of 2014.

Some allowance needs to be made for the time value of money, as well as the possibility that site development will not go as smoothly as Bak expects.   If we use a 50% discount to cover that risk, we still arrive at a value of C$0.375 per share., or 67% more than the current price of C$0.225.  I expect Finavera to quickly rebound to at least the C$0.30 range over the next few days or weeks, as liquidity returns to the market, and investors revalue the stock based on the agreement with Pattern.

Update: On January 7th, Finavera announced a conference call to discuss the deal with investors and the financial community.  The call will be held today, January 9th, at 8am PST.

Disclosure: Long FVR

This article was first published on the author's Forbes.com blog, Green Stocks, on December 30th and AltEnergy Stocks and was republished with permission.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Lead image: Wind turbines via Shutterstock

RELATED ARTICLES

US Capitol

Republicans and Democrats Back Bill to Level the Playing Field for Renewable Energy

Vince Font, Contributing Editor U.S. Senators Chris Coons and Jerry Moran are leading a bipartisan effort to reintroduce tax code legislation aimed at leveling the playing field for renewable energy investment. The Master Limited Partnerships Parity Act w...
African vultures wind turbines

Ecological Map Could Save Vultures from Fledgling African Wind Farm Development

Becky Allen, British Ecological Society Ecologists have developed a new map that could help Lesotho's first wind farms generate low carbon energy without putting the region's vulnerable vulture population at risk. The map is part of a study published today in the...
Pope Francis

The Common Goals of the Pope and Clean Energy

Paul Stinson, EDF Pope Francis turned a keen eye toward the environment and the problem of climate change with his encyclical,“Laudato Si” (“Praised Be”). As a clean energy advocate, I’m heartened that Pope Francis recognizes the need t...
money pile

Deeper Capital Markets for Renewable Energy

Tomas Gardfors and Ann Vesely, Norton Rose Fulbright Following the global financial crisis, a more diversified funding market is developing in Europe. Institutional investors are helping to fill the funding gap left by the contraction in bank lending in the wake of the crisis...
Tom Konrad is a private money manager and freelance writer focused on Peak Oil and Climate Change as investment themes. He manages portfolios for individual clients and is Head of Research for the JPS Green Economy Fund (http://jpsgreeneconomyfund...

CURRENT MAGAZINE ISSUE

Volume 18, Issue 3
1505REW_C11

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @megcichon @jennrunyon

FEATURED PARTNERS



EVENTS

Doing Business in South Africa – in partnership with GWEC, the Glob...

Wind Energy in South Africa has been expanding dramatically, growing fro...

CanWEA Annual Conference and Exhibition

The annual CanWEA Conference & Exhibition has helped companies marke...

CanWEA Winter Solstice Fundraising Dinner

CanWEA Winter Solstice Fundraising Dinner December 1, 2015 Toronto, Ontario

COMPANY BLOGS

The Almost There Markets: Just Give ‘Em Some Time

Earlier this year, we reported on recent legalization of third party fin...

Meteorological Technology International Magazine - SENSORS AND SENS...

Over the past 10 years, these sensing technologies have spread tre...

SunEdison Expands Residential Market Offerings with New PPA, Sales ...

SunEdison has largely focussed on the commercial and utility-scale solar...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS