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IPO Preview: Enviva Partners LP (EVA)

Based in Bethesda, MD, Enviva Partners LP (NYSE:EVA) scheduled a $200 million IPO on NYSE with a market capitalization of $238 million, at a price range midpoint of $20, for Wednesday, April 29, 2015.

The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint managers: Barclays, Goldman Sachs, RBC Capital Markets, Citigroup
Co-managers: J.P. Morgan, Raymond James, MUFG, U.S. Capital Advisors

End of lockup (180 days): Monday, October 26, 2015
End of 25-day quiet period: Tuesday, May 26, 2015

Summary
Enviva Partners is the world’s largest supplier, by production capacity, of utility-grade wood pellets to major power generators.

Since EVA’s entry into this business in 2010, it has executed multiple long-term, take-or-pay offtake contracts with creditworthy customers, and has built and acquired the production and terminaling capacity necessary to serve them.

Valuation
Glossary

Per share dilution

-$10.37 .
————————
Valuation Ratios Mrkt. Cap. ($mm) Price /Sls Price /Erngs Price /BkVlue Price /TanBV % offered in IPO
Enviva Partners, LP $238 0.9 11.1 0.8 2.1 84%

Conclusion
Neutral-plus

  • Expected CAGR of market is 21%
  • Expects to pay 8.25% for March ’16
  • Top line rev. +6.1%
  • Gross margin 10%
  • Pre-tax income 4.7%
  • Price-to-book of .8, Price-to-tangible book of 2.1
  • Selling 84% on the IPO

Business
Enviva Partners is the world’s largest supplier, by production capacity, of utility-grade wood pellets to major power generators.

Since EVA’s entry into this business in 2010, it has executed multiple long-term, take-or-pay offtake contracts with creditworthy customers, and has built and acquired the production and terminaling capacity necessary to serve them.

EVA is larger than any of its competitors, and its existing production constitutes approximately 15% of current global utility-grade wood pellet supply.

Five production plants
EVA owns and operates five production plants in the Southeastern U.S. that have a combined wood pellet production capacity of approximately 1.7 million metric tons per year (“MTPY”).

Two of EVA’s production plants are new facilities that the company constructed using its templated design and standardized equipment.

A third plant, EVA’s largest in terms of production capacity, has been in operation since 2008.

EVA also owns a dry-bulk, deepwater marine terminal at the Port of Chesapeake (the “Chesapeake terminal”) that reduces its storage and shiploading costs and enables the company to reliably supply its customers.

All of EVA’s facilities are located in geographical regions with low input costs and favorable transportation logistics.

Owning these cost-advantaged, fully-contracted assets in a rapidly expanding industry provides EVA with a platform to generate stable and growing cash flows that should enable the company to increase its per-unit cash distributions over time, which is its primary business objective.

Demand
The demand for utility-grade wood pellets is expected to grow at a compound annual growth rate (“CAGR”) of approximately 21% from 2014 to 2020, according to Hawkins Wright.

This growth is being driven by the conversion of coal-fired power generation and combined heat and power plants to co-fired or dedicated biomass-fired plants, principally in Northern Europe, and increasingly in South Korea and Japan.

These conversions are attractive due to a combination of factors: they enable power generators to profitably extend the permitted lives of plants that provide critical baseload power generation; they help countries meet regulations regarding greenhouse gas (“GHG”) emissions and renewable energy usage; and they can be implemented quickly and cost-effectively relative to other sources of renewable energy.

Intellectual property
None

Competition
EVA competes with other utility-grade wood pellet producers for long-term, take-or-pay offtake contracts with major power generation customers.

Competition in EVA’s industry revolves around the price, quality and consistency of the wood pellets produced, the reliability of wood pellet deliveries and the producer’s ability to verify and document, through customer and third-party audits, that its wood pellets meet the regulatory sustainability obligations of a particular customer.

Most of the world’s current wood pellet production plants are owned by small, private companies, with few companies owning or operating multiple plants.

Few companies have the scale, technical expertise or commercial infrastructure necessary to supply utility-grade wood pellets under large, long-term offtake contracts with power generators.

EVA is the largest producer by production capacity, and considers the other companies in this group to be its competitors.

Approximately 60% of the world’s utility-grade wood pellet production capacity is located in North America.

Other current producers of utility-grade wood pellets in North America include Fram Renewable Fuels, LLC, which is owned by an individual investor, Georgia Biomass, LLC, a plant owned by RWE Innogy, Rentech, Inc., and its subsidiary New England Wood Pellets and German Pellets, which is owned by Europe’s largest pellet producer, German Pellets GmbH.

5% shareholders pre-IPO

  • Enviva MLP Holdco, 58%

Dividends
Upon completion of this offering, EVA’s partnership agreement will provide for a minimum quarterly distribution of $0.4125 per unit for each whole quarter, or $1.65 per unit on an annualized basis.

The payment of the full minimum quarterly distribution on all of the common units and subordinated units to be outstanding after completion of this offering would require EVA to have cash available for distribution of $9.8 million per quarter, or $39.3 million per year.

Use of proceeds
EVA expects to receive $185 million from its IPO and use it for the following:

  • Repay $81.9 million of intercompany indebtedness related to the acquisition of EVA’s Cottondale plant and that the company will assume in connection with its sponsor’s contribution of its interests in Enviva Pellets Cottondale, LLC; and
  • Retain $45 million for general partnership purposes, including future acquisitions.

Disclaimer: This EVA IPO report is based on a reading and analysis of EVA’s S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.