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Can these renewable energy companies save Eskom?

by , 09 June 2022
Can these renewable energy companies save Eskom?
South Africa is making some progress toward adding new generation to its underpowered electricity grid.

The government recently signed a power purchase agreement with Scatec SA for 150 megawatts of capacity from private projects.

Scatec is an Oslo-based company that constructs solar and battery storage technology. Ultimately, this deal (and future renewable energy projects) will do a lot to help ease SA's electricity problems.

But Scatec is a private company, which means investors can't get a slice of the pie.

However, there's already a JSE-listed company who provides solar and wind power to Eskom's grid. And their latest results show they're coining it thanks to Eskom's incompetence.
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An “under-the-radar” SA renewable energy play…

Mahube Infrastructure (JSE: MHB) is a renewable energy company that invests and owns stakes in solar and wind farms.

For example, Mahube owns a 9.9% stake in the Dorper Wind Farm.  The Dorper Wind Farm consists of 40 2.5MW wind turbines that generate 100MW of electricity. The 2014 contracted tariff was R1.415/kWh.

It has a 20-year power purchase agreement in place with Eskom, and the electricity price it receives from Eskom will escalate with inflation in the future.

It owns a 20% interest in the Noblesfontein Wind Farm, which produces around 73.8MW of electricity. The farm also has a government-guaranteed Power Purchase Agreement with Eskom that runs until June 2034.

Mahube also holds…
•    A 5.3% stake in the Lesedi Solar PV Farm (75 MW)
•    A 5.3% stake in the Letsatsi Solar PV Farm (75 MW)
•    A 4% stake in the Jasper Solar PV Farm (75 MW-AC/96 MW-DC)

In total, the company is invested in five renewable energy assets across Southern Africa.

Collectively, these assets have the potential to generate enough energy to power more than 350,000 South African homes.

Mahube’s assets generate immediate income with no huge costs!

Because of the way it invested in the projects, it receives interest as well as dividends. This provides the company with a double source of diversified income.

The interest is a ‘guaranteed’ stable income source.

The dividends aren’t as stable. However, they do have the potential to grow higher, which means even more income for Mahube.  

Another benefit For Mahube is that they only invest in operational projects or near operational (6 months from commercial operation) projects.

That means the projects are nearly immediately income producing.

It also means the company doesn’t have to worry about the risk of
construction cost overruns, and projects being behind schedule.

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Mahube’s latest results show big potential ahead…

In Mahube’s recent yearly results, revenue increased by 76.6% to R79.9 million. While headline earnings per share surged to 118.9c comparison to 21.7c a year earlier.

That puts the company on a dirt cheap PE of 5.03.

What’s more, Mahube’s total dividends for the year grew 20%. As a result, the company sits on an inflation-beating yield of just over 10% right now.

Finally, it’s shares currently sit on around a 50% discount, so it’s offering up some real value today.

It’s definitely an “under-the-radar” stock that investor’s should keep an eye on.

See you next week.
Josh Benton, Real Wealth

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Can these renewable energy companies save Eskom?
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