VST Details

Vistra Corp (NYSE: VST) is a leading integrated retail electricity and power generation company. It operates across 20 states and the District of Columbia.

Q1FY21 Results Performance (For the Period Ended 31 March 2021)

• Higher Revenue: The company has recorded 12.2% YoY growth in its operating revenue during the period to $3,207 million.
• Winter Storm Uri Hurt EBITDA: It posted a negative adjusted EBITDA from ongoing operations of $1,028 million compared to the positive EBITDA of $540 million in Q1FY20 driven by the winter storm Uri in Texas that had a material adverse impact on its results of operations and operating cash flows. The adverse weather condition has led to surging demand for power, gas supply shortages, operational challenges for generators, and a substantial load shed incident.

Financial Snapshot (Source: Company Reports)

PJM Auction Results

The company, on 3 June 2021, declared its results from the PJM capacity auction for the planning year 2022/2023. Overall, it has cleared 7,218 megawatts (MW) at a weighted average clearing price of $66.89 per megawatt-day, resulting in around $176 million in capacity revenue for the 2022/2023 planning year. Together with VST’s incremental revenue of $55-$60 million from existing retail bilateral sales above the capacity auction clearing price, its overall revenues as of June 2, 2021, stood at around $231-$236 million.

Outlook

• Financial Impact of Winter Storm Uri: Due to the winter storm Uri, the company now estimates the net financial impact of Uri on its 2021 ongoing operations adjusted EBITDA and ongoing operations adjusted FCFbG of ~$(1,600) million, including self-help initiatives.
• Reissue of Guidance: It has reissued its guidance on ongoing operations adjusted EBITDA and ongoing operations adjusted FCFbG for 2021. It now expects both to stay in the range of $1,475 to $1,875 million and between $200 to $600 million, respectively.
• Dividend: Besides, the company’s board of directors on 29 April 2021 has declared a quarterly dividend of $0.15 per share or $0.60 per share on an annualized basis.

Key Risks

VST’s operations are exposed to the inherent risks of fluctuation in the price of electricity, natural gas, and other energy-related products. Extreme weather events and natural disasters would significantly affect its results of operations, financial condition, and cash flows.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Stock Recommendation

VST has delivered 9-month and 1-year returns of ~11.76% and ~2.70%, respectively. It has made a 52-week low and high of $15.47 and $24.2, respectively.

We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price that reflects a fall of low double-digit (in % terms). We have assigned a discount to EV/EBITDA Multiple (NTM) (Peer Average), considering the weak performance in Q1FY21, financial loss as a result of the effects of Uri and the downward revision in guidance on it adjusted EBITDA and adjusted FCFbG for 2021. For the purpose of relative valuation, we have taken peers like Clearway Energy Inc (CWENa.N), Nextera Energy Partners LP (NEP.N), to name a few.

Considering the aforementioned factors along with its higher net debt levels, current trading levels, and the associated business risks, we advise the investors to book profits. We give a “Sell” rating on the stock at the current market price of $19.53 per share (9:50 am GMT-4, Eastern Time), as on 30^th July 2021.

Technical Daily Price Chart

Source: REFINITIV, Note: The purple color line reflects RSI 14-Period.