Back in mid-October, Stockhouse Editorial introduced our audience to a clean energy company should be on your investment radar –
Jade Power Trust (JPWR) (
TSXV:JPWR.UN,
OTC:TNSTF,
Forum) – a Toronto-based clean energy company with a portfolio consisting of wind, solar and hydropower generation assets…primarily in Romania. In this excusive StockTalk video Q&A podcast, Stockhouse Media’s Dave Jackson was joined by company Chairman Ravi Sood to get our investor audience and JPWR shareholders up-to-date on all things Jade Power Trust.
(Click image to play video)
TRANSCRIPT BELOW:
SH: To start off with, can you all tell us a little bit about yourself and the history of the company?
RS: Sure. My background has been primarily in capital markets, spent the first half of my career on the buy-side investment management field ultimately as a CEO of an investment firm based in Toronto. I sold that company just over 10 years ago and in the last 10 plus years focused on a very small number of personal investments that I've made, companies that I've got behind and help put together and build over that time period. Some I've exited and two of them I'm still very much involved with including Jade Power which as you said in your introduction, it’s a renewable energy company and it's a company that I founded with J. Colter Eadie now seven years ago to pursue renewables opportunities with what we felt were higher returns even adjusting for risks. So our strategies to pursue opportunities in emerging markets or what I like to call tier one and a half markets where there's an additional risk premium associated to them but for those who spend the time and make the relationships and put in the work, there really isn't that much incremental risk for the additional return you're getting from looking at, say develop markets in Western Europe or North America.
That's the strategy that we started with as it happened here. Now, seven years in we have six operating assets. All of them are in one country, which is Romania which was a great place for us to start, great place for us to grow and a great base for us to build from.
SH: Can you update our investor audience and your Jade Power Trust shareholders on any new company developments, especially in the wake of COVID-19?
RD: Well, I think COVID shows how robust the business model is and how simple renewables can be once they're up and running and operational. Of course getting them to that point has a long and complex process with permitting and environmental consideration, financing considerations, construction risk, all that sort of stuff but once they're up and running these are very low touch assets. So they're unmanaged facility and therefore much less exposed to issues like COVID where you don't have to worry about HR issues and staffing them. Everything ran each find interrupted through the good and the bad of the last year and a half COVID and all our contracts were honored. We really had no disruption whatsoever. So our stock moved up and down was the stock market as it reacted to the news on COVID and the pandemic but our actual operations were basically completely unaffected by it.
SH: You’ve recently announced TSX-V approval of a normal course issuer bid followed up with an effective date of consolidation. This may be news to many investors. For potential investors and shareholders, can you explain exactly what this means and unpack the benefits of it?
RS: Yeah. There’s two things you brought up there. One was the share consolidation. Our shares were trading sort of around the 20-cent level and we felt that it was not really representative of where we were as a company. So there are a lot of great speculative growth companies that are trading with the sort of penny stock status, 10 cents, 20 cents, 30 cents, that sort of thing but our company at this point being profitable, under levered, very stable, high visibility of our revenues and earnings, we felt that was kind of a misleading image for Jade Power and felt that a higher share price can be achieved by consolidating our shares. One was more representative of sort of the stability and the status of our business now with all the progress that we've made. So that was a decision, usually I’m not a fan of shared consolidation but I liked the low-price stock and I know a lot of investors like them too but this was really I think a situation where it absolutely made sense.
The second thing that you brought up was the share buyback, the normal course issuer bid or NCIB, which we have had approved in. We have been in the market using and our hope is that we can map that out and buy back many shares for cancellation as possible. Why is that? Well, we're at a stage now where we've paid down a huge amount of debt. As I said earlier, revenues and earnings are very stable. We have a high degree of visibility on it, so not much volatility to them but obviously a little bit related to the weather but looking year, looking five years out, we know how much cash we're going to generate with our business and we know we have excess cash after repaying all our debt.
We have a lot of cash which we think given the universe of opportunities in front of us, the best thing that we can possibly do with it is by our own stock and so we have an approval to buy back as much as 5% of our stock in the year following that approval and we're optimistic that we can get all percent of that back and I I'd be surprised if we weren't in the market a year of doing the same thing again, trying to buy back another 5%.
SH: As you surely know, Ravi, there’s been a debate over the practical merits of renewables on a global scale today versus CO2-emitting fossil fuels. What should investors learn about clean energy solutions that we might not know already know?
RS: I think there's a lot of competing information out there and some of it's incorrect much of it is actually correct but that can still be misleading. So I think that two key points that I'll make of where we are in the energy mix globally and as this applies to almost every market individually and it certainly applies to the global market. Number one is the cheapest possible source of energy now is renewables. You can build solar even in some cases, wind if there are wind resources there that can supply power cheaper than the most efficient coal plants or fossil fuel or hydrocarbon based that source of energy out there without any consideration for the cost of carbon released into the atmosphere or any other associated costs related to that, straight up, economics, renewables beats be fossil fuels. Where is that not true? Well, renewables provide, with the exception of certain types of hydro or geothermal, wind and solar, they provide intermittent power.
So if you're running a steel factory or you're running some business and you need a consistent base load power, you can't get adjust from renewables. You can do it with renewables with some sort of energy storage solution or renewables with some other energy balancing solution there. Usually whether you see it or not as the customer, you probably don't, that balancing is achieved through some baseload power, which is nuclear, it's coal, it's some hydrocarbon-based source of power. So this boom in renewables is fantastic. It's an unambiguous positive. The economics are driving it now it's not subsidies or sort of ESG bubble or anything like that. It's pure straight up economics. However we still need fossil fuels and the good news is we need it on a more marginal basis and we can get more and more efficient on how we use it. So hopefully as renewables build-out continues, our consumption of fossil fuels remained steady or even declined and we get a really efficient energy mix in terms of cost of production but also reduce carbon emissions. So we get the best of both worlds.
SH: The Company looks set for strong growth in 2022. How are you placed to expand operations to meet this kind of demand?
RS: So we have our business as it is, is it's very stable and the positive is, as I said, we have the visibility. We know what we're going to do next year for the next five years. If there's any negative in it, those existing operations are already very efficient. There's not much more we can do to improve them but what we do have is the platform which has a listing on the stock exchange and has a management team that is effectively acquired producing assets and has a lot of domain expertise in renewables and it has an existing business with free cashflow generation. So from that basis, our objective as a management team is to look for opportunities that can leverage those ingredients, the listing, the cashflow and the management team and their expertise to pursue opportunities that are created for all our shareholders.
What do those opportunities look like? Based on where we're trading, we think our shares are very undervalued or be very hesitant to use those for anything, whether it's to issue equity, to buy something or to a vendor to acquire something. So we're looking for opportunities where we're going to use those other elements, which are the cashflow and the domain expertise and use those to develop earlier stage opportunities than we've looked at in the past. Everything that we have right now is already operating, producing energy, no development left to do so we're looking at opportunities a little bit earlier in that development curve where we can without diluting our shareholders, use the cashflow that we have create a lot of value by moving forward with milestones and that development sheet, whether it's building the feasibility study, getting the various approvals required to actually build it and ultimately financial close, in doing that if not completely, almost completely without any access to equity markets, definitely using debt markets and other financing tools but really trying to make use of those first two ingredients that we have. Free cash flow and cash building up on our balance sheet and management expertise
SH: For company shareholders and potential investors, what kind of future development and progress can we expect at your various, wind, solar and hydroelectric projects…Romania and perhaps beyond?
RS: So I think the opportunity for us in Romania is really to use that domain expertise in some cases in particular with our winds, we can expand on the permits that we already have, the grid connection that we already have. There is an opportunity there for us to potentially expand and that would be sort of a hybrid between an organic expansion and broke by acquisition again, throwing those additional ingredients that we already have in the mix but beyond that I think the real opportunity for us is in, ultimately, I believe lead to better recognition in the marketplace, a higher trading multiple and broader interest from investors is an expansion to a new geography. So it worked a lot in our first seven years as a company. We are active in hydro, we're active in solar, we're active in wind. So all three key renewables categories, we have domain expertise and we're looking to apply that to new jurisdictions where we can make use of that expertise, make use of the cashflow that we have and diversify our operating assets and create an even lower risk proposition for current and future shareholders.
SH: Simply put, Ravi, what separates Jade Power Trust from the competition and makes your business model unique?
RS: I think nothing particularly unique about our business model. I think what is unique about our approach is that we are focused on these tier one and a half market monitor places where we're not going off the scale in terms of risks but they're not tier one jurisdictions where we're competing with pension funds and insurance companies, sovereign wealth funds with ultra low returns thresholds and ultra low cost of capital. We're going into places where it's a little bit more hectic, a little bit riskier, a little bit more complex to make it all work and maybe earlier in the curve countries that have not hold out and gone to 20 or 30% renewables already, they're very early in that progression. So we're not competing with the big guys. So by not going into markets where we're not in such intense competition with ultra low return threshold competitors, we're able to get much higher returns from an identical business, our wind parks, our solar panels, the same stuff that you see in tier one markets in developed markets.
The process is the same. We're even selling to the same customers in many cases, certainly with their Rumanian business. So the risks really aren't that different but it is additional work but we think we're getting paid and our shareholders are getting paid for taking on that additional risk and managing it. So I think that's the key differentiator for us. The other aspect to where we are at as a business is we're actually under leveraged for a business with the kind of stability of earnings that we have now. Three, four years ago, we were dramatically over-levered. I think we peaked in $99 million in debt. We'll have net debt of zero before the end of 2022 and huge, huge reversal in terms of being an extremely stretched and stressed balance sheet to one that has a massive excess capacity and it's to do new deals and hopefully do things pursue opportunities that are created for shareholders.
SH: You mentioned earlier that your stock as being undervalued, but I have to mention it’s had a very nice bump over the last couple of months…a nearly 40-percent increase in value since early September. What can you tell our investor audience regarding the current valuation of your stock and why you think it’s still a good value buy right now?
RS: Yeah, I think it's a simple metric. We've seen a phenomenal performance on anything related to renewables that certainly the technology related plays have gone to become a darling stocks and provide a fantastic returns. The actual operators of renewables, those are probably peaked and gone sideways for a bit the last two years but they're earning the highest ever multiple that they've ever seen. So, whereas putting my old money manager hat on and thinking back to where what I would have paid for some of those companies as a fund manager 20 years ago or 15 years ago, I would have been looking for values sub 10 times EBITDA as a multiple. Now, those companies are pushing through 15 times in pursuing projects with a very low return, low single digit equity returns which they never would have done before.
The summary or the key takeaway there is the market is valuing renewables companies, power producers, IPTs that are large and liquid and diversified and very high multiples, 15 plus times EBIDTA. We’re plus or minus five times EBITDA. So huge amount of leverage there, big wall to climb, great opportunity for us as we grow the business, as we buy out some low hanging or loose stock out of the market with our buybacks to climb from that five times to something approaching that 15 times. Now, the companies that enjoy those multiples have multi-billion-dollar market caps, they're much more mature diversified companies but that's the opportunity for us to get from where we are now to where they are in and that's something that we're really confident we can accomplish over the next several years.
SH: What’s the long-term strategy for the company moving forward and what should retail and institutional investors be looking out for?
RS: I think if I were to take a snapshot of where we are today and compare it to like, what is that same snapshot? How am I going to compare a 10 years out? What's the company going to look like? Let's say today we have six operations to solar, to wind to hydro, we're 81 megawatts. We're in one country, we are profitable. 10 years from now I'd like to say, yes, we're still profitable and that we've been profitable for all 10 of those years but instead of operating in one country, we'll be in five countries. Instead of having six operations we'll have 20 or 30 and the other thing that I'd like to see and I think that translates to return and a higher multiple and think more broad appreciation capital markets is that the size of our assets is increasing over time.
We started the company in 2014 with five megawatts of hydro assets. We wouldn't even consider doing a transaction or pursuing an opportunity anything like that small now with where we are as a company, I'd like to see us doing a transactions, which were all 50 megawatts plus and indeed graduating to doing individual assets that are a couple of hundred megawatts plus. So 10 years from now, 5 plus countries 20 plus individual operations still active in hydro solar and wind and measuring our total generation capacity to gigawatts i.e. over a thousand megawatts as opposed to the 81 megawatts that we're at now.
SH: Can you tell our audience a little bit about your corporate management and board teams, along with the experience and innovative ideas they bring to the green energy space?
RS: Yeah, I think we have real fit to purpose management team and board, so it's a very lean management team. We don't have much in the way of overheads. We have a chief executive James Colter Eadie, who's based in Bucharest Canadian executive but based there now for seven, almost eight years. Betty Soares, our Chief Financial Officer based in Toronto, a huge amount of experience in emerging markets mostly from the mining industry prior to joining us and our board has a diversified skillset. So we have people from the renewable industry. John Huxley is one of the founders of Algonquin power, which is certainly in the Canadian marketplace, one of the greatest success stories of independent power producers, board members with the huge experience in M&A and also operating in emerging markets and capital markets as well. So a real tight knit group of people that are really fit for purpose for this company.
SH: And finally, Ravi, if there’s anything I’ve overlooked please feel free to elaborate.
RS: Yeah, I think we've covered it all. I think Jade is a company that I'm super enthusiastic about. I think there are about 10 countries in the world that are extremely advanced in rolling out renewables and there's a hundred plus that aren't and there's a huge universe of opportunities for us to go and earn excess returns from new markets without taking on phenomenal amounts of additional risks. So I think the first seven years of our company were mostly years of struggle taking on lots of debts, having difficulty communicating our story in gaining credibility with the marketplace, the next seven years are going to be very different. We're profitable. We can fund our own opportunities internally. We've demonstrated that we've made some mistakes, we've corrected course and we've created a very profitable platform that works and that the pace of our growth is only going to accelerate with all these things working in our favor. Now that were basically challenges that were against us five years ago are now the headwinds are now tailwinds.
For regular updates, visit
jadepower.com.
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.