Seeking Alpha • Sep 10
Via Renewables: Power Fading Away
Summary
Attrition in RCEs in the last few years gives a bleak outlook on Via Renewables' future.
Dividend payout ratio of 90% and dividend cover of 0.65x mean they are not well covered by earnings.
The company's total returns have dropped 25% since March 2022, largely because of deteriorating financials.
A bear market is foreseeable for this stock as they have shown no signs of growth even with sky-high inflated prices in the market.
Investment thesis
Via Renewables, Inc. (VIA) has been on a bearish trend since the start of 2022, and there does not seem to be any indication from its financials that this situation is about to change anytime soon. It has lost 28% in its stock value since March 2022, from $11.19 per share to $8.02 per share.
VIA data by YCharts
The company's cash flows provide a bleak outlook regarding its growth capabilities since it pays off most of its profits in dividends, leaving very little to invest in the company's future.
In line with my view of a continued bearish future, the total returns have fallen by 25.71% YTD and shown high volatility. Total Returns have exhibited minor signs of recovery in the current year, but the drastic drop in its residential customer equivalent ((RCE)) units gives us little hope for any significant augmentation in its valuation in the near future.
VIA Total Return Level data by YCharts
The total revenues in the TTM have shown some improvement compared to the previous 2 years, where COVID-19, its related restrictions, and other pandemic-related hindrances were assigned blame for its lackluster growth, but the revenues have been declining since before that. This turbulence offers little hope to potential investors looking for a stable investment.
VIA Annual Report 2021
VIA Revenue ((TTM)) data by YCharts
The annual report for 2021 also does not depict a positive outlook for the company's future growth, portraying a decrease since 2018 in RCEs, which is a measure of their number of customers. These numbers have been on a steady decline, and the company blames this attrition in recent times on the COVID-19 pandemic and its inability to market door to door or through telemarketing due to orders by regulatory agencies and government authorities. The company has lost more than half, or over 55% RCEs since 2018.
VIA Annual reports
On top of this, the company management team cannot be considered the most experienced, with an average tenure of 1.7 years, suggesting a relatively new team is in charge.
I am bearish on Via Renewables stock as the company does not show any promise of a turnaround anytime soon, especially considering the decreasing RCEs and the management's inability to recoup them. The non-existent growth and incoherent financials further solidify my view of their declining fortunes.
Company Overview
Via Renewables, Inc., formerly Spark Energy, Inc., is an independent, small-cap, retail energy services company founded in 1999 and headquartered in Houston, Texas.
It operates in 102 utility service territories across 19 states and the District of Columbia, serving both residential and commercial customers. They operate on an asset-light model to source power and gas, allowing them to become a competitive alternative for their customers to fulfill electricity and natural gas demand.
It operates in two segments; Retail Electricity and Retail Natural Gas. The electricity segment is involved in the transmission and sale of electricity, while the natural gas segment deals in the transportation, distribution, and sale of natural gas.
They had approximately 408,000 RCEs as of June. A major chunk of the revenue generation comes from the electricity segment, 81%, while the other 19% is accredited to the natural gas segment for the previous year.
VIA Annual Report 2021
They purchase electricity and natural gas supply through physical and financial transactions with market counterparts and ISOs and supply electricity and natural gas to residential and commercial consumers in accordance with fixed-price and variable-price contracts.
Value as an Income stock
Via Renewables reported a dividend yield of 9.76% in the MRQ, which is the saving grace of this company from an investor's point of view. The company had a 4-year average dividend yield of 7.89%, considerably higher than its larger competitors like MGE Energy (MGEE), which trails at around 2%.
They have, in the TTM, had a dividend payout ratio of 89.17%, which means they are paying out the majority of their earnings, which is great for those currently invested in the company but is in no way desirable for a potential investor as, ideally, a relatively lower paying out stock should be targeted in this sector.
VIA Dividend Yield data by YCharts
The dividend does not seem any better now than it was three years ago, with no growth, largely due to stagnant revenues, which saw a small bump in the MRQ because of a non-sustainable one-off gain impacting its June 2022 financial results.
Financial Position
A closer look at the company financials reveals a downturn in Adjusted EBITDA from the previous year, with the company attributing this to operational losses pertaining to the pandemic.
VIA Revenue Annual reports
This fact is highlighted further when looking at the company's cash flow by operating activity, which took a drastic hit from 2020 to 2021, with a reduction of $79 million or 86%. As per their annual reports, this decrease was primarily attributable to the non-recurring Winter Storm Uri-related costs of $64.4 million and other changes in working capital.
Winter Storm Uri caused major blackouts in the United States, leaving millions of people without power for days and accumulating millions of dollars' worth of damage to the infrastructure, which massively impacted the utility sector.
Cash flows in financial activities saw a drop of $73.1 million between 2020 and 2021, which was due to an increase in net borrowing of $58 million under their Senior Credit Facility and a decrease of $12 million in distributions to non-controlling unitholders.
VIA Annual reports
The company's cash flows have been highly volatile since the pandemic, and there is no indication of stability, especially with the cyclical shifts and the recession around the corner.