Company Overview: Hannon Armstrong Sustainable Infrastructure Capital Inc (NYSE: HASI) is engaged in climate solution investments, including renewable energy, energy efficiency, and other sustainable infrastructure markets. The company’s investment portfolio includes equity investments in unconsolidated entities; commercial and government receivables, for instance, loans for energy efficiency and renewable projects; real estate as a part of sustainable infrastructure projects, typically under long-term leases debt security investments of renewable energy and energy efficiency projects.

­­­­­­HASI Details

Material Business Updates

ENGIE Commissions 2.3 GW US Renewables Project Portfolio: On 20 December 2021, HASI announced operational completion of the 2.3-gigawatt (GW) portfolio of utility-scale solar and wind projects – Jointly owned by HASI and ENGIE North America Inc. (ENGIE). There are 13 renewable projects online – including 0.5 GW of utility PV projects and 1.8 GW of onshore wind.

Establishment of CarbonCount® Green Commercial Paper Note Program: As announced on 27 September 2021, HASI established a US$100 million CarbonCount® Green Commercial Paper Note Program, wherein BofA Securities, Inc. stood as the structuring advisor and sole dealer.

Historical Financial Trend:

HASI illustrated sustainable historical growth while keeping the value proposition intact. The Operating revenues have been growing since FY16 with a consistent increase in gross profits. Operating revenues grew at an outstanding 23.2% CAGR (FY16 – FY20).

Figure 1: Historical Financial Overview

Source: Company Reports, Analysis by Kalkine Group

Third Quarter FY21 Performance:

Figure 2: Quarterly Performance Highlights

Source: Company Reports, Analysis by Kalkine Group

Full-Year FY20 Performance:

Figure 3: Annual Performance Snapshot:

Source: Company Reports, Analysis by Kalkine Group

Top 10 Shareholders:

The top 10 shareholders together form ~37.71% of the total shareholding. The Vanguard Group, Inc. and BlackRock Institutional Trust Company, N.A., hold a maximum stake in the company at ~­­­8.53% and ~7.03%, respectively.

Figure 4: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Metrics:

Improving average prices and scaled investment portfolios have translated into long-term sustainable growth levels. As a result, top-line and gross profits manifested synchronised growth attributed to steady margins. Eventually, HASI’s profitability and return status remain stable.

Figure 5: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

Investment in Residential Solar: HASI holds over $200 million investments in residential solar with over 30k solar systems delivering above 200MW. The Sunrun Residential Solar Lease Portfolio holds predominantly contracted cash flows with three years of average seasoning. This substantially shrinks the risks attached to the investments.

Competitive Advantages: HASI’s diversified investment portfolio, flexible funding program facilities with stable margins, and industry leading ESG deliver a strong competitive edge to HASI in the industry.

Guidance: The company expects to deliver annual distribution EPS growth of 7%-10% from FY21 to FY23. Further, annual DPS is expected to grow at a compounded annual rate of 3%-5% from FY21 to FY23.

Key Risks:

Semiconductor Shortage: The recent semiconductor chip shortage has delivered significant hurdles for equipment manufacturers for renewable energy products. If the deficiency sustains for a year-long period, HASI may seek repayment issues from borrowers.

Credit Risk: HASI is rigorously involved in debt underwriting processes; considering exogenous factors from COVID-19, portfolio investments may default on their loan repayments to HASI, giving rise to substantial cash flow problems.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

HASI has delivered 3-month and 6-month returns of ~-5.737% and ~-3.384%, respectively. The stock is trading below the average of the 52-week low price of US$44.69 and the 52-week high price of US$72.42, indicating an accumulation opportunity. The stock has been valued using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). The company might trade at some discount compared to its peers’ average Price/Earnings (NTM trading multiple), considering supply chain constraints, rising input costs, and labour shortages, affecting repayment flow. For valuation, a few peers like Nextera Energy Partners LP (NYSE: NEP), Saul Centers Inc. (NYSE: BFS), Solaredge Technologies Inc. (NASDAQ: SEDG), and others have been considered. Considering the continuous involvement in the $100 million CarbonCount® Green CP Note Program commissions 2.3 GW US Renewables Project Portfolio, and potential upside as indicated by the valuation, we give a “Buy” recommendation on the stock at the closing market price of US$52.25, up by ~2.31%, as of 21 December 2021.

HASI Daily Technical Chart (Source: REFINITIV)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.