ARRY - 4 Stocks For A Decarbonized Future
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The whole world ison a decarbonization mission amid rising climate change concerns. Infact, the International Energy Agency (IEA) estimates that this yearwill bring $1.7 trillion worth of investments in deploying renewableenergy and other clean-energy technologies—a new all-time high thatfollows six straight years of increases.
Experts have, however, warned thatdecarbonization will involve more than just electrifyingtransportation and using more solar and wind-generated energy. It willalso take sustainable agricultural practices, low-carbonmanufacturing, green construction and other climate-friendlysolutions.
Thishas resulted in a surge of deal-making, as illustrated by the factthat venture capital decarbonisation-related deal value topped $433billion in 2023, according to GlobalData Net Zero by 2050 report. Inaddition to that, a number of global funds have shown theiroverwhelming support for the trend. For instance, the Arab Energy Fundhas said it plans to invest up to $1 billion over the next five yearsin decarbonisation technologies in the Middle East and NorthAfrica
For a longtime, the only way for investors to get exposure to thedecarbonization opportunity was through pure-play industrial carboncapture companies, mostly done in private markets, meaning everydayinvestors are completely shut out. However, we have identified fourcompanies that could provide an alternative way of playing theincreasing decarbonization momentum.
As mentioned earlier, one crucial part of theeffort to achieve net-zero emissions in addition to carbon reductionstrategies is the transition to electric vehicles (EVs), which iswhere VivoPower International PLC (NASDAQ:VVPR) comes in.
VVPR’s flagshipsubsidiary, Tembo, supplies conversion kits containing all the partsneeded to convert a vehicle from an internal combustion engine (ICE)to an electric vehicle (EV). These parts include the batteries, ane-motor, a reduction box, a charger, software, and many othercomponents that make the converted vehicle work safely and seamlessly.
Over the pastyear or so, the EV specialist has been one of the major beneficiariesof the EV transition, especially outside the US. Tembo’s conversionkits have seen significant interest from the market, as illustrated bythe company securing a commitment of 5000+ kits and an order pipelineof 10,000+ in the first half of 2023. Those included an MOU in Jordanfor 1,000 kits, opening a path to the Middle East, which is thelargest Landcruiser market, and a definitive agreement in Kenya for4,000 kits, providing entry into second-hand vehicle segments, whichexpands the addressable market considerably.
That early success inthose markets has validated Tembo’s conversion kits as a viablesolution to help in the decarbonization process, and investors aretaking notice. VivoPower International PLC (NASDAQ:VVPR) recently announced that Tembo had met all the milestones to obtain thefinal follow-on strategic direct equity investment pursuant to acommitment received in June 2023 from a UAE-based private investmentoffice backed by a member of the ruling Al Maktoum family of Dubai.Under the agreement terms, the investor had the option to increasetheir cumulative investment in subsequent closings up to $10 millionbased on milestones that have now all been met. The follow-onfinancing values Tembo at $120 million, which means the value pershare of VVPR should be approximately $40 per share.
VivoPowerInternational PLC (NASDAQ:VVPR) will continue to retain itsmajority stake in Tembo, which appears to be on track to unlockingeven more shareholder value. Tembo recently announced it would begoing public via a merger with Cactus Acquisition Corp. (CCTS), aNASDAQ-listed SPAC, at an indicative pre-money equity valuation of$838 million. Here’s a quick breakdown of the deal:
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VivoPower shareholders get 5 Tembo shares worth $10 each forevery share held.
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Tembo willissue a special dividend of $1 per share, which would translate to anadditional $5 per share held for VivoPowershareholders.
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Even if the Tembo share price upon IPO is only $1, this impliesa per-share valuation for VVPR of $25, including the value of dividendshares.
At the same time, the company has announced that its board hasauthorized a capital management strategy, including a stock buybackprogram, that will allow the company to purchase up to $5 million ofits outstanding shares. These share buybacks will be funded using thecompany’s proceeds from the realization of business and assetdivestitures, including spin-offs like the Caret business unit’sportfolio.
VivoPower International PLC (NASDAQ:VVPR) stock hasperformed exceptionally considering that over the past week alone,shares of the sustainable energy solutions company have created new52-week highs and made investors triple-digit returns.
Array Technologies(NASDAQ:ARRY) enables renewable energy companies to harness thesun’s power with patented trackers that drive multiple rows of solarpanels and track the sun’s rays for efficient energy generationthroughout the day. Though it may sound like a niche product, it has alarge addressable market, as illustrated by the fact that trackerdemand is growing 30%–40% faster than the rest of the solarindustry, according to the company’s November 2023 investorpresentation.
Oneof the key metrics for the company’s business is the levelized costof energy (LCOE), and Array claims to deliver the lowest LCOE for itscustomer base over an expected 30-year life. Another aspect that makesARRY appealing from an investor viewpoint is that the company looksset to receive a lot of support from the Inflation Reduction Act sincealmost all of its materials are domestically sourced.
Furthermore, thecompany is also growing its international presence, as shown by itsrecent partnerships with companies like Aluminum Products Company tosupport the increasing market for the renewable energy sector in theMiddle East.
According to its most recent filings, Array Technologies.generated $1.57 billion in revenue in FY 2023, while adjusted earningsper share for the full year came in at $1.13, almost five times higherthan the $0.26 per share it reported in 2022.
Enlight RenewableEnergy (NASDAQ:ENLT) is an independent power producer (IPP) thatbuilds and develops solar and wind power facilities worldwide. Whilemost of its current plants are in Israel and Europe, the company alsohas several projects nearing completion in the US. According to itsfilings, the company has a gross installed capacity of 1883 MW, with apipeline expected to further install 618 MW and 1500 MWh of capacityby the end of 2025.
The company recently reported Q3 2023 earnings, revealing thatits revenues grew by 3% YoY, reaching $58 million, fueled by newprojects and inflation indexation in PPAs. During the period, thecompany's net income increased by 35% to $26 million, primarilydue to a non-cash benefit of $8 million from the mark-to-market ofinterest rate hedges related to the Atrisco project.
The company’srenewable energy projects have gained solid momentum across Europe,with the company revealing that the European Bank for Reconstructionand Development (EBRD), together with Erste Group Bank AG and itslocal bank Erste Bank a.d. Novi Sad (Erste), have approved a financingpackage worth $101 million for the construction of a new windfarm inSerbia.
The EBRDand Erste will provide parallel loans worth $50.5 million each,including the associated debt service reserve facilities that Enlightwill use to develop, construct, and operate the 94-megawatt (MW)windfarm. This project was financed under Serbia’s first renewableenergy auction for wind capacity, which took place in 2023, and oncecommissioned, the Pupin windfarm will be able to supply clean, greenelectricity to more than 40,000 households.
SolarMax Technology,Inc. (NASDAQ:SMXT), through its subsidiaries, operates as anintegrated solar energy company in the United States and China. Thecompany's US operations primarily consist of the sale andinstallation of photovoltaic and battery backup systems forresidential and commercial customers and the sale of LED systems andservices to government and commercial users, while its Chinaoperations mainly consist of identifying and procuring solar farmprojects for resale to third parties and performing EPC servicesprimarily for solar farm projects.
Last month, the company announced the closing ofits initial public offering of 4.5 million shares of common stock atan initial public offering price of $4 per share, raising grossproceeds of $18 million.
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