Luxor Capital Group, LP is an employee owned hedge fund sponsor. The firm provides its services to pooled investment vehicles. It invests in the public equity and fixed income markets across the globe. The portfolio is composed of 45 stocks and has a total value of $5,883 million.
According to a recent SC 13G form that is used when the filer owns between 5% and 20% of the company and plans to hold it only as a passive investor, the hedge fund now owns 5.1% of Terraform Power Inc (TERP) with 3,925,137 shares. This is a new position for the hedge fund and the trade was done on June 19.
TERP operates the power generation assets of SunEdison Inc. (SUNE) and its consolidated subsidiaries (SunEdison), and third parties.
The hedge fund has been active in the sector recently. In the fund’s latest 13F, it revealed several positions. This sector is 23% of Christian Leone’s Luxor Capital Group’s US equities portfolio.
The company is currently in active negotiations to acquire up to 1.2GW of wind generation power plants for total consideration of up to $2.6 billion, and they expect the potential cash flow characteristics of the portfolio of power plants to be generally comparable to their existing portfolio. Wolfe Research thinks TerraForm's planned acquisitions would allow it to significantly increase its dividend (current yield of 3.4%).
Profitability and growth is rated 3/10 with a ROE of -18.38%, a ROA of -2.60% and a ROC of -0.41%. All these ratios are at the company’s all-time lows and are underperforming the Global Utilities – Independent Power Producers industry by 73%. The net margin is deeply negative (-35.40%) and all the above confirm the company is not creating value.
The financial situation is not different. Cash to debt is 0.07, and is underperforming 80% of the industry that has an average ratio of 0.20.
Despite this unhealthy situation, during the last 12 months the price rose by 15% and the stock is trading with a very high forward P/E of 40.82, -11.53% from its 52-week low and +74.88% from its 52-week high.
During the last quarter the company has been bought by many gurus. Ron Baron (Trades, Portfolio) and Larry Robbins (Trades, Portfolio) increased their stakes; Steven Cohen (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Jim Simons (Trades, Portfolio) bought stakes of the company for the first time, and Leon Cooperman (Trades, Portfolio) he reduced his stake by 59.44%.
Highlights:
The company had a strong first quarter in 2015 and could be well-positioned to be able to support its growth. Based on the strength of their execution and visibility to growth, they are increasing the dividend guidance to $1.35 per share in 2015.
EBITDA and CAFD have increased by 98% and 110% respectively, while its yield increased by 20%.
They increased dividend guidance by 50% and provided a five-year dividend growth target of 24%, which is the highest growth rate among their peer group.
TERP executed the transaction at an 11% cash-on-cash yield generating an incremental $5 million in unlevered CAFD in 2015.
The company continues to drive strong growth through accelerated drop downs from SunEdison and the conversion of their M&A pipeline into accretive acquisitions. It will also continue to conservatively manage TerraForm Power's balance sheet and liquidity in support of the Company's long-term growth strategy.
For 2015, the company will continue to manage a very careful balance between going back to the market for capital and really creating shareholder value.
Despite the attractive and growing yield, the current ratios and returns show the company is not strong.
