Revenue margins for renewable energy company, Wigton Windfarm, are projected to stall over the near to medium term if the company fails to strike new deals, according to THE ANALYSTS of Taking Stock with Kalilah Reynolds.

In its latest financial report for the year ending March 31, 2021, Wigton reported a seven per cent increase in revenues to $2.6 billion. Profits were also at a record high of $792 million, a 20 per cent jump over its previous year. However, the stock price has fallen 16 per cent since the start of the year.

Investment research and sovereign risk analyst at Jamaica Money Market Brokers (JMMB) Group, Leovaughni Dillon, said concerns about future revenue margins at the Windfarm have been contributing to the decline of the stock.

He said people would have been triggered from last December when the company announced that the final rate adjustment under the power purchase agreement (PPA) for its Phase II plant would be applied in April this year. The rate adjustment will translate to a 50 per cent drop in revenue from Wigton Phase II.

“If you look at when they reported Q3 numbers ending December 2020, soon after reporting you saw where the stock was above flat and then it fell off a week or two later,” he said.

According to Dillion, phase II generates up to 18MW of electricity for the grid. From the last audited financials, Phase II generated $795.7 million in revenue for the year.

Using that figure, a 50 per cent drop would translate to Wigton earning about $397.9 million from Phase II. That would equate to a 15 per cent fall in its total gross external revenue based on the same financials.

Dillion said while this presents a negative outlook for the company, other metrics including their debt-to-equity ratio, put them in a good position to raise capital if needed. He said they also have over $2 billion on their balance sheet which can help them win future deals. However, he’s expecting revenues to remain stagnant at best until those new deals are struck.

“How the company is structured, you’re going to have a little increase, but because of this massive decline coming now in April, it’s unlikely the gains will make up the number so what’s gonna happen is that you’re going to see a decline in revenue until they can find those huge deals,” reasoned Dillion.

“If they can restructure, you’ll see an upside, but until then this is what you’ll see for a while because people are asking where the upside is. There are things they can get into but until they strike that deal you are going to have a plateau,” Dillion added.

On a previous episode of Taking Stock, Wigton’s Managing Director Earl Barrett disclosed that the company was considering going into farming to boost its core revenue stream.

Dillon expects that the company’s next venture will be big.

“When they make an investment, it’s going to be massive because of the infrastructure, layout, wind or solar; it’s going to be huge. They are in a good position but the problem is landing those contracts. There is some competition in that space and those deals don’t come about everyday. It takes a while to iron out these deal structures,” he argued.

If Wigton wants to generate more power, they will also have to win the next Request for Proposal (RFP) from the Government. However, the administration has not issued one of those in over five years despite committing to additional renewable energy. The last time it made a call for more renewable energy, Wigton lost the bid to Paradise Park, an affiliate of MPC Caribbean Clean Energy.

“Because of that you find that Wigton is basically stuck so they can’t say we’re going to set up a new project tomorrow,” explained business writer at the Jamaica Observer, David Rose.

Rose said Wigton has been positioned in a “tricky spot” with Phase II nearing its full lifespan for 20 years in 2024. He said the company also continues to be affected by wind availability which accounted for its record profits in the last year.

Rose explained that although Wigton has the Jamaica Public Service as a guaranteed buyer, wind does affect how much power they can produce.

Meanwhile, investment analyst at Proven Wealth, Julian Morrison, said the diversification opportunity from the company’s current portfolio represents an advantage from an investment perspective.

“From a value perspective, the P/E and price to book means investors can lean into energy investments at a fairly reasonable entry point but from a broader landscape, investors have limited capital so they want to allocate it in a way to maximise the value generated for the portfolio,” he said. 

New episodes of Taking Stock with Kalilah Reynolds premiere Tuesdays at 7 pm on YouTube and kalilahreynolds.com . Watch here: www.youtube.com/watch?v=YG2WuvrsGc0