The IPO market isn't quite what it was a decade or two ago. Today, more and more startups are opting to remain private or sell out to bigger firms. Increasing red tape, including rising regulatory and disclosure costs, have been roundly blamed for this unfortunate trend that has been disenfranchising small investors. Lately, Wall Street has also started to sour on money-losing enterprises with robust topline growth no longer considered. The Covid-19 pandemic has only served to muddy the waters even more for stock markets. However, there's one notable exception: Investors have been betting the farm on renewable energy companies, with solar stocks particularly outstanding.
It's hardly surprising, therefore, that a solar company has made the ranks of the biggest and most successful IPOs in the year-to-date.
New Mexico-based Array Technologies (NASDAQ:ARRY) has charged out of the gate, surging 79% in its first three trading days to give the maker of solar-powered equipment a market valuation of $5 billion.
Biggest solar IPO
Array Technologies, a designer and manufacturer of solar ground monitoring systems, launched onto the Nasdaq Global Market on Thursday, with the offer including 7M shares from Array and 40.5M from a selling shareholder. Even with an upsized IPO pricing the shares at $22, Array still managed to surge 45% on its first day of trading, once again proving that investor enthusiasm in the solar sector remains as strong as ever. With 127.0 million shares outstanding, the IPO valued the company at about $2.79 billion, but the scorching rally has nearly doubled that to $5B.
Array is hardly new in the solar industry, having been founded in 1989 by Ron Corio, a pioneer of solar trackers. Today, Array is recognized as the world's second-largest supplier of solar tracking systems, a rapidly growing market estimated at ~$3 billion in 2020. Array had a 17% slice of that market, trailing only market leader Nextracker with a 30% share.
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Array is riding two key trends: Strong demand for clean energy stocks ahead of November's presidential election and robust demand for equipment that allows solar projects to squeeze out more power.
Array's business remains in the pink of health: 2019 sales clocked in at $647.9M (+123% Y/Y) with a net income of $39.7M. That was an improvement from the previous year when it booked a $60.8M loss. The strong trend has continued in the current year despite the crippling pandemic, with Array reporting H1 2020 revenue of $552.6M (+145%) with $76M in net income.
The DuraTrack system, which rotates PV panels across a single north-south axis throughout the day to follow the sun, is Array's main product. Although trackers do add upfront costs to a solar project, rotating the panels allows more energy to be generated compared to a "fixed-tilt" mounting system. Indeed, this results in a substantially lower levelized cost of electricity over a project's lifetime. Roughly 70% of utility-scale solar projects in the U.S. install a tracker.
Focus Energia Lining up Giant IPO
If you missed the Array Technologies IPO, there are a couple more renewable IPOs in the pipeline.
One such upcoming listing is Brazil's Focus Energia. The power company has already enlisted several banks with Morgan Stanley as the lead coordinator of the IPO. Banco Santander SA and US bank Citigroup Inc. will also participate.
According to the company's draft preliminary prospectus, the company goal is to develop over 3 GW of solar projects in its Futura Complex. Focus Energia also plans to use part of the raised funds to develop other generation projects, including distributed generation (DG) systems. There's no word yet on the financials of the listing, but the IPO is likely to be a big one given the scale of solar projects the company is targeting.
There's no telling, though, whether this will be yet another blockbuster IPO. ArcLight Clean Transition Corp. (NASDAQ:ACTCU), a blank check company of ArcLight CTC Holdings, IPOed a month ago in a $250M offering after downsizing it from $300M. ACTCU intends to target companies in the clean energy ecosystem, including renewable power generation, the distributed electrical grid, energy storage, zero-emission transportation, renewable fuels, zero/low-carbon industrial applications, carbon capture, utilization and storage, and sustainable manufacturing. Unfortunately, those shares have gone practically nowhere in 30 days.
But given how the solar sector has turned red-hot, chances are that Focus Energia will enjoy plenty of goodwill from investors.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. More
Comments
Almost everyone wants clean energy, except those whose job or income depends directly on the fossil fuel industry.
Renewable energy has now been sold and politically promised to the public as a ready solution. We need to do is to switch to use it. It is cheaper, more reliable, and saves the earth. It is only the evil fossil fuels business that is stopping it, and it needs to shut down.
The trouble is that this is a lie. The main issue is that currently installed grid energy storage is practically zero, and we do not have the technology to make it. Current lithium-based battery storage doesn't scale up, hydrogen storage would, but roundtrip loss is over 2/3rds. Cost calculations are intended to deceive, comparations are done in terms of capacity, not every production. Investment for storage and new nationwide ultra high voltage grid is left out. There is also a question of how clean is clean energy, but that is a lengthy and opinionated discussion. For me, it is enough that if used sensibly renewables are cleaner than current energy production. Changes of it 'saving the earth', may be better not to comment on that.
It will be interesting to see what will follow if and when politicians start driving the US oil industry down. Will it start with the lofty goal of CO2 neutrality end in blackouts, expensive energy, and recession. This would probably lead to a major backlash and public rejection of renewables. Or will the US simply import oil and gas from National Oil companies (OPEN, Russia, Colombia, etc)? Or will we settle for a gradual reduction of CO2 emissions and move in a slow stable path increasing wind and solar with natural gas providing electricity when renewables are not available (somewhat expensive, we still need investment in a new grid and for maintaining two overlapping power industries).
On the other hand, it is fair to argue that if we do not move towards clean energy, we never get there. At the moment there is a lot of public support and thus political will to take steps in this direction. The trick is how to navigate between unrealistic demands and meeting expectations on energy price and reliability. There is also a risk that this issue becomes a political hot potato, which gets toggled on or off every time the political tide turns and grinds to a halt.
This is an interesting situation. It seems that a lot of taxpayer's money will be thrown at renewables, might be worth picking it up. Trying to guess who will make the government look good and receive the jackpot is not easy. Next ERA might be, but they run essentially on a realistic wind/natural gas base, which may not be exciting enough for voters wanting zero emissions. They hype other things too, like pumping and battery storage, nuclear and solar, but so far those are only hype. So looking for something shiny and glittering. Tesla Energy? Or to technology providers like Array.
Nobody claims renewables are reliable, their low capacity factor is well-understood. But the same investment money that is the subject of this article is also going into addressing that. And there are new markets for electricity that fit well with variable supply of electricity from renewables. Besides charging stationary and vehicle batteries, replacing fossil fuel heating with heat pumps and creating green hydrogen for some existing industrial uses (and eventually storage) will require Terawatts of additional renewable generation, and it's obviously not going to come from fossil fuels.