This Junior Solar Developer Just Landed A Mega Sale

TM Editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

I bought a lot of solar stocks back in January, as I see solar as the big energy play of 2023 rather than hydrocarbons. Junior solar developers are often rather cheap, but not because of cash flow multiples. Multiples are much higher than what is seen with oil & gas. But the take-out value of solar projects–because of their 25- to 40-year power contracts–is huge.

My largest position, Westbridge Renewables (WEGYF), proved that this past week. This week, management surprised shareholders by monetizing five of its early-stage solar assets in southern Alberta, totaling 1.4 GW, or 1400 MW, for CAD217-CAD346 million. At the bottom of that range, it works out to roughly 15.5 cent per watt.

The market had been expecting a sale of just one—its lead Georgetown asset. Alberta is a premium solar market, not just due to optimal weather, but also because it and Ontario are the only Canadian provinces to de-regulate power prices, and they are third highest among the 10 provinces.

WEB location of solar farms

If you think that Westbridge has 100 million shares out, that’s a cash amount of $2.17-$3.45 per share. Some of that could be a special dividend (the CEO Stefano Romanin owns 20 million shares), or internal fund growth -- or both.

This deal was announced but not closed. The buyer is Greek conglomerate Mytilineos (MYTHY), a $4 billion company. One of its main backers is Canadian Prem Watsa via Fairfax Financial (FRFHF), a legendary investor.

The stock may not come to trade for a few days, as many must first wrap their heads around such a new, small company getting such a big deal so quickly. Closing of the purchase and sale of each asset is conditional upon the following:

  1. Obtaining approval of the purchase and sale by Westbridge shareholders and the TSX Venture Exchange.
  2. Obtaining regulatory approvals from the Alberta Utilities Commission (AUC).

One must understand that the company will not receive much money initially. There was a small down payment, but Mytilineos won’t be paying for these assets until they hit NTP and get into production. Georgetown, their lead project, has notice to proceed (NTP), which is a key milestone for production. Once an asset hits NTP anywhere in North America, it is worth a lot of money.

SunnyNook likely will hit NTP later this year. As rough guidance, given that the first two assets could monetize this year, Westbridge could receive cash of just under $100 million this year and just over $100 million next year. So, there’s no big cash up front (in my opinion, the stock will open higher but not close to $2). But it seems certain that Westbridge will never have to raise capital again if they don’t want to.

And they will now be able to be a 'BOOM' company–Build, Own, Operate, & Maintain–and get all the long-term cash flow from their next few solar projects if that’s what they want to do. They can do so without ever raising capital again.

The final purchase price will be very complicated, as Westbridge has a trailer on the ITC credits that Canada is offering, which could total over $400 million. I purchased my 100,000 shares in December at 57 cents. It closed Wednesday at $1.22—already a double, but it has a chance to double again.

WEB 1 yr chart Jun 1 23

It’s going to cost Mytilineos about CAD1.7 billion to build these power plants, and they expect to have them all operating by 2027. This deal was done with no commission to anyone, which means no M&A fees and no big lawyer bills. This team–Stefano Romanin and Scott Kelly–raised all their own money. There was never any analyst coverage here by the sell side because they were never going to raise any money/make fees.

There was a good story on Mytilineos (and the Westbridge deal) in Canada’s Globe and Mail newspaper recently. I'm certain the size of this deal surprised everyone, but this transaction proves how much the industry is valuing these projects -- way more than investors are. But this deal shows the market is coming around. This is the way to play energy and small-caps.

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