This is a Z4 pre quarter note.
BWEN Valuation Thoughts
Our prior 12 month upside target of $4.00 was based on the midpoint of our 2021 EBITDA range of 3.5x to 4.5x. This Z4 upside target was meant to be conservative given their small cap, off the beaten investor trail status and thin trading nature and was issued with the shares trading in the lower $3’s. The upper end of the range implied a $4.50 target which we saw as a medium term stretch goal (though at 4.5x it was still seen as fairly conservative). There has been no news from the company since we issued that target level and we’ve had no cause to alter our 2021 EBITDA figure.
The stock closed at $4.96 as of last night’s close and has traveled as high as $5.78 in recent days.
Our thoughts on what has changed since that mid June piece.
- A) A Third sellside analyst initiated on the name (Craig Hallum initiated in early July after HC Wainright initiated a few weeks before). This has helped to increase exposure to the name a bit more rapidly than we expected.
- B) Our further sense would be that anything clean is running. Wind, solar, fuel cells and anything closely related to them have seen multiple expansion in the last two months. This is a function of the coming U.S. elections and general thinking surrounding a post Covid-19 world.
- C) We are seeing strong order flow from wind names in general. VWDRY just posted strong preliminary 2Q20 orders, as did Siemens, and we’re seeing a number proposals for large projects in the U.S. including New York’s new plan to significantly grow offshore and onshore wind capacity.
- D) Roth, the original sellside covering analyst, has a Buy rating and $2.75 target on the name. They have been radio silent for weeks now as the stock has marched higher.
- E) Management has perhaps been more coy with us than usual. I’m not one to ask for management to bless my estimates. But I do look for more feedback than I got on our 2021 figures.
- Taking A, B, and C together we could see our way to increasing the lower end of our multiple range for our 2021 EBITDA figure by a full turn. After all, part of our conservatism stems from the company being off the beaten path and it is now less so. When we started coverage here in 2019 daily volumes were generally in the 20 to 25,000 range. The name essentially traded by appointment. Now the 20 day average has leapt to nearly 500,000 and often it trades at multiples of that.
- D) is pure speculation on our part but it makes some sense given the long standing relationship between BWEN and Roth, the lack of updates by the Roth analyst of late, and the lack of BWEN’s inclusion in a recent round of virtual calls by Roth for many of its names. Again, pure speculation on our part and doesn’t really enter into the upside price target thinking above. For a deal on the offshore to enter into our thinking we’d need to see how it is struck. E) is just comment that might support D).
Impact: Our view is that this extra exposure and solid to improved industry fundamental view adds a full multiple to the lower end of our range and adds 1.5x to our upper end yielding a new range of 4.5x to 6.0x. The 5.25x mid point is still fairly conservative (especially if you look at other parts suppliers like a TPIC who trades near 7x their 2021 number or the turbine OEMs themselves who trade north of 10x) and yields a new upside target of $5.95 while the upper end of the band yields a stretch upside figure of $6.80.
Disclosure: I am/we are long BWEN, TPIC, VWDRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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