Alternergy conducts first public Q&A since IPO

Alternergy [ALTER 0.70 ?1.4%; 159% avgVol] presented its Q1 results on Wednesday as part of the PSE’s STAR Investor Day event, and MB was there to document its first public Q&A with institutional and retail investors since its IPO over a year ago. For me, the most interesting component of any STAR presentation is the Q&A, because it’s where we get the chance to hear the management team talk outside of the cold forensics of the financial statements to address the hope, fear, optimism, and pessimism of the average investor. 

> On enhancing shareholder value:  The ALTER team said that its focus is on controlling what it can control and that as a developer, it does everything that it can to complete projects “within the timeline and committed budget”, increase its pipeline, and build good relationships with stakeholders. 

> On its growth strategy:  ALTER said that its “DNA is a developer”, and therefore its “preference is brownfield development” as opposed to acquisitions. (MB note: “Brownfield” means development on land that has been previously used for some other purpose. “Greenfield” would be development on untouched land.) The management team said that it is open to being “opportunistic” with acquisitions, but that its overall focus is on “looking for projects from the ground and building them toward completion.”

> On outlook of renewables market:  “The power industry is really at the point where there is a sustained pressure towards a price increase.” The ALTER team said that there’s a shortage of power supply, and what existing supply there is will come under pressure as power plants age or weather phenomena disrupt operations. ALTER said that its strategy is to simply grow its portfolio into this market gap, especially over the next two years. 

> On wind vs solar:  The ALTER team was asked whether it was intentional to be “more exposed to wind rather than solar”, and ALTER responded by saying that while both wind and solar are scalable, they “like wind” because it generates more electricity per installed capacity. As the ALTER team put it: “For instance, if we build a 50 MW solar, you’ll only need a 25 MW wind project to match the amount of energy that we will be generating.” ALTER said that wind is also less intensive in terms of land use to generate the same amount of energy, and that its analysis shows that wind projects generate more cash flow than solar projects. 

> On starting to distribute dividends:  One question asked when ALTER would start paying dividends, and the ALTER team responded (after a laugh) that it’s “all about resource allocation”. ALTER said that at this stage, it’s a growth company, and that it would like to use its resources to build a “sizeable portfolio over the medium term” with the goal of “increasing shareholder value.” ALTER said that once it has achieved that goal, “dividend payments would not be far behind.”

MB BOTTOM-LINE: Kudos to any management team that takes questions from the public. It’s not easy to be this communicative and transparent, but as a long-term investor, this kind of insight into the management team’s thinking and analysis of their own data and the market as a whole is important. If your trading style is technical, ALTER’s analysis of wind versus solar isn’t going to matter to you at all, but if your thesis is based on bets in the power generation sector, that response might trigger some research that could be helpful. Overall I’d say that the ALTER team did very well. It was clear that they were nervous, but over time I’m sure the team will become more comfortable with answering the questions and interacting with the investing community in such a person-to-person way. Well done, ALTER!

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