E Enviva Partners Is A Unique Basic Materials MLP With A Juicy Yield

Enviva Partners (EVA) is a new MLP with a juicy 8.3% yield and is the largest global producer of utility-grade wood pellets used in power generation.

It is not our intention to cover new IPOs. However, in the past two months there has been interesting niche companies coming to market with a MLP or REIT structure favoring higher distributions. Last month it was InfraREIT, an electric transmission utility structured as a REIT, and this month it is Enviva Partners (EVA), a wood pellet manufacturer structured as a MLP.

EVA is a new offering by Riverside Fund, a private equity firm, and Hancock Natural Resources Group, a registered investment advisor and a wholly owned subsidiary of Manulife Financial Corporation. This joint venture was the previous owners of the production facilities. The JV built four plants and acquired an additional plant. The JV is also building more plants in anticipation of dropping them down into EVA.

These five plants have current production of 1.7 million metric tons of utility-grade pellets, which is a lower grade of pellets than the “premium” grade used in residential pellet stoves. There are plan to increase production to 2.0 million tons over the short term. 

EVA has long-term “take or pay” contracts for 100% of its production until 2017 and then 50% of production after 2018. In other words, the factories are sold out for the next 2 ½ years – and all to the export market.

With over 170 pellet manufactures in the US, why is EVA of interest?  The Europeans are much further ahead of the US in converting their coal-fired power plants to biofuel, with pellets being the preferred biofuel. Japan and South Korea are also growing utility-grade pellet markets. Overall, the US supplies 60% of the global wood pellet market, and EVA is the largest. 

In 2014, power generation in Europe consumed 9.2 million metric tons of utility-grade pellets, with the UK representing 50%. Annual pellet European consumption for power generation is expected to grow by 21% a year, representing a market of 25.8 million metric tons by 2020. 

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Disclosure: Long EVA.

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George Fisher 4 years ago Author's comment

This article first appeared in the June issue of Guiding Mast Investments