First a business description:
"Sunrun Inc. (Sunrun) is engaged in the design, development, installation, sale, ownership and maintenance of residential solar energy systems (Projects) in the United States. The Company is engaged in providing solar energy services and products to its customers. Sunrun has over 111,000 customers across 15 states, as well as the District of Columbia. Sunrun sells directly to consumers over the phone, Web and retail stores, as well as through a network of certified partners. It offers various plans and services, such as Pay as you go and Purchase your system. Its Pay as you go offers plans, such as BrightSave Monthly and BrightSave Prepaid. Sunrun's BrightSave Monthly plan comes with both product and workmanship warranty, as well as protection against future utility rate hikes. Users can lock in over 20 years of electricity with Sunrun's BrightSave Prepaid solar lease plan. With Sunrun's BrightBuy, users can purchase the entire solar system."
There are a couple of issues with this business model. First this is a debt financed business, and inevitably during a solar downturn, these guys will go bust.
They have $640MM of non-recourse debt, and $244MM of recourse debt.
Their recourse debt has interest of 4% to 5.75%. While this may not seem high, they are at the mercy of their bankers to keep them solvent. If the banks pull the plug on funding, this business has no ability to payback debt and will go insolvent like SunEdison.
The non-recourse debt includes term loans from banks and securitized solar asset backed notes. The interest on these is better, but again Sunrun relies on banks for their funding.
Their total debt is $900MM, which is not an insignificant amount.
Now granted they claim they have $1 billion of net earning assets. By a crude measure, they should be trading at $1 billion EV. If you take their current market cap of $524MM PLUS $244MM of recourse debt MINUS unrestricted cash of $206MM PLUS Minority Interests of $389MM, gives you EV of $951MM. So the market has it about right at the current price.
What I would say is that this is not a good business. They have no moat and using fickle third party funding sources to finance a highly cyclical commoditized business is NOT recipe for success. I wouldn't get too excited here, but there is obviously scope for them to "make hay while the sun shines."
Treat the stock as such .
"Sunrun Inc. (Sunrun) is engaged in the design, development, installation, sale, ownership and maintenance of residential solar energy systems (Projects) in the United States. The Company is engaged in providing solar energy services and products to its customers. Sunrun has over 111,000 customers across 15 states, as well as the District of Columbia. Sunrun sells directly to consumers over the phone, Web and retail stores, as well as through a network of certified partners. It offers various plans and services, such as Pay as you go and Purchase your system. Its Pay as you go offers plans, such as BrightSave Monthly and BrightSave Prepaid. Sunrun's BrightSave Monthly plan comes with both product and workmanship warranty, as well as protection against future utility rate hikes. Users can lock in over 20 years of electricity with Sunrun's BrightSave Prepaid solar lease plan. With Sunrun's BrightBuy, users can purchase the entire solar system."
There are a couple of issues with this business model. First this is a debt financed business, and inevitably during a solar downturn, these guys will go bust.
Their recourse debt has interest of 4% to 5.75%. While this may not seem high, they are at the mercy of their bankers to keep them solvent. If the banks pull the plug on funding, this business has no ability to payback debt and will go insolvent like SunEdison.
Their total debt is $900MM, which is not an insignificant amount.
What I would say is that this is not a good business. They have no moat and using fickle third party funding sources to finance a highly cyclical commoditized business is NOT recipe for success. I wouldn't get too excited here, but there is obviously scope for them to "make hay while the sun shines."
Treat the stock as such .
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