The Inside Scoop on Why Deutsche Bank Reiterated their $36 Buy Rating on TerraForm Power Inc(NASDAQ:TERP)

On October 4 research analyst Vishal Shah and research associate Jerimiah Booream-Phelps Reiterated their $36 Buy Rating on TerraForm Power Inc(NASDAQ:TERP) and issued a report titled ”Takeaways from Management Meeting.”

Overall thoughts on the meeting were ”We walked away incrementally more positive after meeting TERP management team. We expect concerns over near term capital raise to fade over the next few months as the company executes on closing the VSLR and Invenergy transactions. We also believe the company is evaluating a number of other options such as providing additional disclosure on existing projects or call right list and is working closely with private market participants in order to monetize existing projects. Reiterate Buy, $36 price target.

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Key takeaways from the meeting included; 1) Project finance market remains open and could potentially be an option to finance the Vivint assets in a scenario where the high yield market remains challenging. Mgmt suggested that 70% of the cash flow was from unlevered assets and there is sufficient balance sheet capacity to take additional project debt; 2) Mgmt also suggested that they have a lot of flexibility with the Oakfield project drop down from SUNE and could use the cash generated from project as well as revolver in order to fund the drop down.

The company’s undrawn revolving facility currently stands at $725m and would still remain above $550m post the potential draw down for Oakfield project; 3) Private market valuations for projects have not moved as much as public market valuations and mgmt is looking at a number of options including strategic project sales in order to create shareholder value; 4) The company suggested that SUNE margin loan has no impact on TERP’s ability to raise additional capital and does not trigger any collateral obligation; 5) Unit economics of underlying projects remain relatively attractive and the company reiterated the view that 2015/16 dividend targets are easily achievable. Moreover, the company reiterated the view that outlook beyond 2016 can easily be supported by the 3.7GW ROFO list.

Vishal Shah and his associate Jerimiah Booream-Phelps concluded that “‘As we highlighted in our Friday note, shares are currently not discounting growth beyond 2016 and downside case valuation is $16 after making very conservative assumptions. We believe additional disclosure could help more accurately model project cash flows over the next few years and remove some conservatism from our $16 valuation model. We also believe more disclosure on unit economics of projects in the ROFO list would enable investors to get more comfortable about growth outlook beyond 2016.”

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