 Good day, fellow investors. Today we're going to discuss pattern energy. It is a company that has a lot of wind power plants and that boosts a dividend yield of 9% to 10% depending on the price today. So that's very interesting. So we're going to discuss or give an overview of the company, discuss the potential scenarios, what can happen, what is the fair value, the risk and the reward. Let's start with the overview. Pattern energy is a power producer focused on wind energy projects, mostly in the US with a few projects in Canada, Puerto Rico and Chile that has been just divested. It has a strong development pipeline in Japan where they acquired five projects in the first quarter of 2018 and the management's plan is that Japan has to grow its wind energy production from 3 gigawatts to 36 gigawatts by 2030. And they see it as a great opportunity that resembles what has been going on in the States in the last five years. They just sold one of the Chilean plants and they evaluate other acquisitions with 200 million of available investments. A part of owning and managing projects for their yield, pattern energy is branching out into project development and it recently invested in pattern development 2.0. Their ownership is 20% but this could grow to 30% by the end of the year thanks to additional investments. The goal with the development expansion is to reach better returns as developments have higher returns on investment capital than just acquiring already finished projects. The current portfolio has 2.7 gigawatts under ownership 3.8 under operations where the goal is to reach 5 gigawatts by 2020 and the company is on a good path to reach that. As it has an identified right of first offer on many projects that should grow the current portfolio by 42%, the average project life is 14 years with 92% of energy off-take contracted and the customers have good credit ratings. The dividend is $1.68 per share which gives 9% dividend yield and while there is no opportunity for short-term dividend growth, as the management is lowering the dividend payout ratio from the current 100% to 80% so that the 20% can be used for growth, nevertheless, since the IPO in 2014 the company has increased its dividend 15 times. The guidance for cash available for distribution is to be between 151 million and 181 million where 165 is needed to cover for the dividend. Now the management expects to have the 20% of cash available that won't go into the dividend to grow in the future and they see growth of about 3% over the long term in their cash available for distribution which should later also increase the dividend and make this a growth story. They also expect to recycle capital as they just sold a plant in Chile that was had a lower yield in relation to the capital they got and they hope to invest that capital in yields of around 10% so selling the 6% behind the 10% so that's also somewhere where they hope to manage to grow. Let's see the issues with this wind power generating company. So the first issue for pattern are higher interest rates even if their debt is partly fixed and mostly hedged with interest rate swaps higher interest rates affect future refinancing which is a negative for cash flows and that's how it goes so as we see rising interest rates we'll see declining stock prices. The current interest expense should be around 100 million on total debt of 2.5 billion implies an average 4% interest cost where the Japanese loans are from 0.72 to 3% while US loans go up to 6.6%. A 1% interest rate increase would over time add 25 million to the cost of capital and thus be detrimental to growth, new investments and current returns. There are those interest rate swaps as hedges but those are not perfect so higher interest rates over the long term really would put pressure on pattern energy and that's something to keep in mind. Now another problem for pattern energy are tax credits. The government might close them shut them down at any point in time which would be very very detrimental for the company as they are monetizing their tax credits by selling them to tax investors. Further perhaps there will be less subsidies for renewable energies you never know what will happen especially if the cost of those renewables keeps going down they won't need subsidies anymore and the government might say okay now you are on your own. It is long term contract but you never know what can happen there. Another thing with these renewables is that they produce energy and when there is a lot of wind they produce a lot of energy which means that on the daily minute-to-minute auctions of energy the prices really go down. So it is again questionable the more projects there are whether the prices that they can sell and the profits that can be there will be higher or lower. Then if there is less wind less profits there's nothing you can do and last year there has been let's say 8% I think less wind than the average so also something to keep in mind. Now a dividend cut would be very detrimental because dividend investors don't like dividend cuts and if interest rates make more trouble for pattern energy then they could breach some debt covenants and then you have a very very negative spiral. With all those long term projects long term contracts you never know when will what happen so the long term gives you a lot of risk because you don't know perhaps now it looks like this but in five years it might look completely different and that's the risk you have to implement in such an investment as pattern energy. I have made a few scenarios the good the bad and the worse so if all goes well pattern energy is fairly priced for a 10% return I have added 3% growth price earning ratio of 10 in 2040 as a final value some of present values I get to 19.32. If we see a 20% cash available for distribution decline let's say in the next three years due to government subsidies tax credits whatever then the value present value is much lower at 15.64 I am using a 10% discount if the cash available for distribution falls 50% due to higher interest rates lower energy costs and lower value of the projects whatever then we get the sum of present values of 10.85 however if it all goes well and the market gives it a 20 valuation for a 5% yield if interest rates go down and that will be making this more attractive then we will we see a present value of almost 40 so a lot can happen if things go to the worst then the stock price will go down and the yield will adjust especially if the cash gets lower however if investors will be happy with a 5% yield which is still better than many other investments now then the stock price would go much higher so pattern energy is an investment on interest rates renewables tax credits politics but if you want a sustainable investment in your portfolio and you're happy not with the 10% let's say that with the risk what you can probabilistically expect is a 7-8% so if you're happy with a 7% long-term average yield and you're happy to invest more if the stock price drops this might be a nice addition to a sustainable portfolio I think there are better investments in the whole sustainable environment but we'll come to that on a more actionable idea I think pattern should be looked at because at some point interest rates go up but at some point they will start going down and if the company is in trouble but will improve when interest rates start going down then it might be the best time to look at pattern energy it's not yet blood on the streets there but with lower interest rates this could really be a bonus because then the 10% yield will be more more attractive 9% and go down towards the 5% and then you make your money so keep an eye if you like this investment strategy if you like the dividend you never know perhaps it fits your portfolio well thank you for watching looking forward to a comments if you like this renewable solar energy wind energy please check my stock market research platform in the link below or click here to hear more about it as we discuss many many investments and analyze them from a risk reward perspective thank you for watching I'll see you in the next video