Strong economic activity should drive commodity stocks well into 2019

Warmer than normal summer has led to robust natural gas prices: … we believe that natural gas prices will be… the forward curve would suggest.

· We look for 2018 exit prices in the … and average 2019 price in the range of about …: Assuming …, we’d expect natural gas prices to … by November then move towards the … level by December 2018. We would expect natural gas prices to drift towards the … range by mid-year and break back towards … levels by yearend 2019, averaging about … for the entire year.

· We expect economic growth to … 2H2018: …; we expect … to … at least 2019, if not into YE2020.

· Therefore, we expect 2H2018 and 1H2010 power gross profit … than expectations: … .

· Similarly, we’d expect natural gas infrastructure businesses to … for 2H2018 through 1H2019: … .

· Utility performance is also likely to … economy: … .

· Threat or danger to our thesis is pending …: … .

· We believe LNG is likely … economy and weather: … .

· However, with … economic activity, we’d expect interest rates to …: … .

· Therefore, we believe … underperform …:

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AES 2Q2018 Earnings (8/7/2018): Clean, lean, mean and going green! Clear visibility to upside! Finally!

We now know where AES is going: AES wants to be a global … company through … and …
However, closet mission is to be big player in … , in our opinion. We like this new development and makes sense for AES in light of LT global energy picture.
Given so many countries still use … to generate power, … makes strong sense on many levels, particularly in … – reentry into China?
AES trusts its … and … projects may boost MT-to-LT growth
Troubled … is back on schedule and marching towards completion in … .
Achieving … may be a good strategy. … won’t change bankruptcy-remote subsidiary structure.
We … feel AEPS guidance through 2021 is … : We feel it’s … , particularly given … and … on base of some … , over XX% increase; should boost … .
… our NIV/share … $XX and ST-Target/share … $XX.

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AES 1Q2018 Earnings (05/08/2018): Strategy & tactics are clear but vision’s cloudy; regardless undervalued

We understand what AES is doing, but we don’t know where it’s going. We can’t answer what AES wants to be when it’s done restructuring? It used to be that AES wanted to be global IPP player.
AES reached agreement to complete …
We believe … will provide …
AES means to focus on … in US, so we look for sale of … to fund 10GW of utility-scale solar
We continue to feel AEPS guidance through 2021 is …: We feel it’s closer to XX.X%
AES is trading as if growth is …
… could be major LT growth source, particularly in … – reentry into China?
AES trusts its … strategy and … may boost MT-to-LT growth
Achieving investment … may be a good strategy
Issues surrounding AES, include, but aren’t limited to: 1) …, 2) hasn’t disavowed share buybacks, 3) …, and 4) we can’t say what …, in our view

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AES 4Q2017 Earnings (02/27/2018): 2018 AEPS guidance surprises but LT guidance conservative in our view

AES provided … 2018E AEPS guidance of $XX-$XX vs. our $XX estimate and $XX consensus
… guidance comes from continued …, changes, …, …, and …
AES looks to complete its … in …
AES means to focus on … and … , so we look for … to fund XXGW of …
We continue to feel AEPS guidance through 20XX is …: We feel it’s closer to XX%
… could be major … source, particularly in … – reentry into China?
Issues surrounding …, include, but … to: 1) …, 2) …, and 3) …., in our view
… our NIV/share xx $XX … & ST-Target/share xx $XX … .

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2018 Industry Update: Economic growth should favor commodities-driven businesses in 2018

Warmer than normal winter:
Weak gas prices:
However, 4Q2017 and 1Q2018 power gross profit could be …:
Similarly, we’d expect natural gas infrastructure businesses to perform … :
We expect economic growth to surpass …:
Strong economic performance should lead to …:
Commensurately, we expect natural gas infrastructure businesses to perform well:
Adjusted for seasonality, we expect natural gas prices to … and, given normal weather, we’d expect natural gas prices to … for 2018 with an exit price of some …:

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GOP Tax Bill is win for utilities, power, infrastructure, and customers

GOP Tax Bill (GOPTB) looks to be … industries and companies in our coverage universe
Key aspects of GOPTB that affect our coverage industries and companies include, but not limited to:
21% corporate tax rate would be expected to reduce deferred income tax liability by some XX%
Interest expense deductibility capped at XX% of EBITDA for 2018-2021 and to XX% of EBIT after
100% investment deduction, except for utilities that would … interest
Preservation of existing … and …
Repatriation of profits tax at XX% for … and XX% for …
Base-erosion & Anti-abuse Tax (BEAT) …: If payments to foreign affiliates are … then BEAT is imposed. We … to companies that we cover, given … would be allowed to …
AES Corp. faces … , we …; AES has …:
NRG Energy …:
Exelon Corp. …:
Cheniere Energy, oddly enough, …:
BKH, CNP, DUK, EIX, PCG, PNM, SRE should … but may be able to use …:

Analysis is reserved for our paid subscribers.

Conclusion is reserved for our paid subscribers.

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AES 3Q2017: We expect strengthening global economy to provide strong tailwind

As expected, AES looks to complete …
We believe improving … will provide …
We continue to feel AEPS guidance through 20XX is …: We feel it’s .., given … and with XX% …, AES is … XX% CAGR
Then new projects totaling some XXGW (up from XXGW …) on base of some XXX net GW, about a XX% increase, should boost growth …
But, AES is trading as if growth prospects are negative
… could be major LT growth …, particularly in … – reentry into China?
… is a surprise
AES pointing towards its … strategy and … projects to boost MT-to-LT growth
Issues surrounding …, but are … limited to: 1) continues to …, 2) hasn’t disavowed share buybacks, and 3) …, in our view

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AES 2Q2017 Earnings: We feel the upside coming, but now we have to see it

AES 2Q2017 Earnings: We feel the upside coming, but now we have to see it || Except Alto Maipo, things seem to be turning, and AES sees economies finally improving. We continue to think AEPS guidance through 2020 is conservative: We feel it’s closer to 11.6%, given organic growth should be some 4% and with 1% inflation, AES is already at 5% CAGR. Then new projects totaling some 4.6GW on base of some 27.0 net GW, about a 17.0% increase, should boost growth above 8%-10% guidance. But, AES is trading as if growth prospects are negative. We continue to look for Alto Maipo to be completed. Gas-to-power could be major LT growth source, particularly in Asia – reentry into China? AES seems close to reducing its risk profile to target levels, but look for more exits in Europe. And, to us, Asia/Europe combo signals exit from Europe. AES pointing towards its MCAC LNG strategy and energy storage projects to boost MT-to-LT growth. Focus on getting investment-grade-credit-equivalent is a telling and good strategy. Issues surrounding AES, include, but are not limited to: 1) continues to pay more than a nominal dividend, 2) hasn’t disavowed share buybacks, and 3) growth trajectory isn’t at potential, in our view. But, it appears that AES’s hurdle rates are moving towards a more rational level, which we believe should drive growth. Thus, we look for AES to reach our $19/share ST-Target.

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The Logic NY Fed Court Decision to Uphold ZECs is Spurious

The US District Court of the Southern District of New York (Fed District Court) yesterday ruled through New York Southern District Judge Valerie Caproni dismissed all challenges to New York’s Zero Emissions Credit (ZEC) program
The decision by Judge Caproni, though seemingly logical, is actually spurious, in our opinion. The decision was based on the following logic and comparison:
While we do appreciate Judge Caproni’s position and interpretation of the law, we note several inconsistencies in the Judge’s arguments

By acknowledging that financial subsidies do allow otherwise uncompetitive sources of generation to be built, Judge Caproni is acknowledging that financial subsidies do distort market pricing because it increase supply into the market relative to demand, which by definition, ALWAYS NEGATIVELY affects pricing

Conclusion: Therefore, we continue to believe that as the case is appealed to higher judicial authority, we maintain that the most rational outcome is the reversal of both NY and IL subsidies for nuclear power. However,

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Power Company Privatization will Lead to Unintended Consequences

Lately there has been talk about privatizing power companies, including both CPN and NRG, and while we believe that the most rational course for these companies may be to go private – given the lack of “enthusiasm” for these names in the public markets – we are certain that the end result will not be either what the market expects nor what the regulators, politicians and, most of all, what the consumers desire
The assumptions we are making in our analysis are as follows:
Private equity (PE) investors are not unintelligent and will act in their own self-interest
Virtually all of the market (public and private) believe in the theory of “all else being equal”
Market forces move along least resistant path absent paradigm shift, typically externally imposed
As reserve margins dip below 12% market prices become more volatile and margins begin to expand at an accelerated rate
PE investors will be betting on the reduction of debt from internally generated free cash flow and asset sales, supplemented by cost reductions, to increase the equity value of its investments with the option value of changing market dynamics to further boost its rate of return
The first thing that PE investors are likely to do is to make the assumption that the underlying market forces and conditions don’t/can’t/won’t change for the foreseeable future
Based on these underlying assumption, PE investors will be able to figure out which plants they buy will remain profitable, which won’t and which are on the margin

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