Nextracker: Industry Positioning, Legislative Tailwinds Are Bullish Factors, Rate Buy

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Investment Summary

Nextracker (NASDAQ:NXT) is an charismatic play connected star tracking, offering an charismatic risk/reward symmetry to enactment successful the cleantech thematic. NXT is simply a carve-out from Flex Ltd (FLEX) and listed connected the NASDAQ earlier this year. The banal has plentifulness of organization sponsorship, with astir 80% of the interval owned by organization investors and different 20% owned by PE/VC funds.

NXT provides star tracker solutions and bundle for star farms. Its footprint is successful utility-scale and ground-mounted distributed procreation star projects. NXT's offerings are designed to optimize star sheet show by dynamically tracking modules successful large-scale star powerfulness installations. It books revenues by selling star trackers and bundle products, truthful gross maturation depends connected 3 factors, 1) maintaining and expanding marketplace share, 2) the wide maturation of the star market, and 3) launching caller products.

Despite listing this year, NXT really has a beardown way record, having led the planetary star manufacture successful gigawatts ("GW") shipped from 2015—2022, and successful the U.S. from 2016—2022. It delivered 18 GW successful 2022, up from 12 GW 3 years ago. NXT has a web of 50 partners operating successful 16 countries and has shipped a cumulative ~80 GW of star tracker systems crossed 6 continents to date.

This study volition unpack the latest concern updates and nexus this backmost to the broader bargain thesis. Net-net, I complaint NXT a buy, eyeing $53 arsenic the adjacent terms objective.

Figure 1. NXT Price Evolution, March 2023—date

Data: Updata

Risks to concern thesis:

Investors indispensable admit the pursuing risks, successful full, earlier speechmaking immoderate further:

1. A bulk of the bargain thesis hinges connected the tailwinds provided by the IRA and the consequent taxation credits to star purveyors. Should this change, this would alteration the concern outlook.
2. A higher outgo of capital, choky money, the inflation/rates axis—these are each macro-level factors that could clamp concern into the sector.
3. NXT is simply a caller listing aft its carve-out from FLEX, having lone a abbreviated play of nationalist marketplace trading of its communal equity. A bulk of the interval is owned by institutions and backstage funds. This could interaction liquidity of the banal successful the secondary market.

These risks indispensable beryllium realized earlier proceeding to immoderate concern decisions.

Critical facts underpinning bullish thesis

1. Industry maturation levers

Two wide factors underpin the bargain thesis presented present today:

• Regulatory tailwinds

When looking astatine large-scale star investments successful the U.S.—and for the remainder of the world, for that matter—the concern thesis is robust, successful my view. The Inflation Reduction Act ("IRA") is simply a cardinal tailwind adding to the economical premix here. Since the IRA was passed, there's been different 52GW of caller facilities owed online by 2026, with ~16GW of this nether operation arsenic I write.

Source: SEIA Solar Market Insight Report Q2 2023

The marketplace is besides expected to triple successful size, according to the Solar Energy Industries Association:

"Over the people of our five-year outlook, the US star manufacture is expected to astir triple successful size. Between 2023 and 2028, the manufacture volition adhd 236 GWdc to an installed basal of 142 GWdc (as of year-end 2022). Solar volition beryllium the starring exertion of the cleanable vigor transition, acknowledgment to the semipermanent argumentation certainty provided by the IRA".

These estimates besides cook successful the 10% home contented bonus provided nether IRA. In fact, the IRA besides provides for a 30% concern taxation credit ("ITC"), which does not person immoderate home contented requirements. Per the Department of Energy: "Solar systems that are placed successful work successful 2022 oregon aboriginal and statesman operation earlier 2033 are eligible for a 30% ITC". The ITC has been a cardinal instrumentality successful the government's arsenal for the star assemblage implicit galore years. But the 30% ITC is present a captious origin for driving concern into star powerfulness facilities. It was slated to trim to the pre-IRA scheduled complaint of 10%, but since the IRA was introduced, it has maintained the summation to 30%. This is extraordinarily important successful my view. The higher ITC complaint is acceptable to stay changeless for astatine slightest 10 years, and could frankincense beryllium a important operator for request of NXT's offerings.

• Tangible maturation wrong sector

The SEIA besides projects robust maturation successful star installations implicit the coming 5 years. Forecasts enactment deployments astatine 29GWdc by the extremity of 2023, and c.263GWdc to beryllium online by the extremity of 2028. This would bring the installed fleet to 377GWdc. In Q1 this year, the residential star marketplace added 30% of further capacity, whereas commercialized star volumes were up 27% YoY. It projects 13% maturation successful commercialized star capableness by the extremity of 2024.

Source: SEIA Solar Market Insight Report Q2 2023

2. NXT Q2 FY'24 insights

NXT enactment up revenues of $480mm successful Q2 FY'24, up 19% YoY, connected halfway EBITDA of $84mm, a 160% YoY summation [note: arsenic a reminder, NXT reported its 2nd 4th for its fiscal 2024. This corresponds with Q2 CY 2022. For consistency and simplicity, I'll beryllium talking successful presumption of Q2 FY'24 from hereon in, unless different stated]. Its ex–U.S. conception was the biggest maturation contributor, pulling successful $209mm (44% is turnover) and increasing 56% YoY. Whereas home income were up ~350bps YoY to $270.4mm.

Given the momentum it's garnered this YTD, absorption revised its FY'24 guidance by ~5% to $2.2Bn—$2.4Bn, calling for 21% YoY maturation astatine the top. It is eyeing a revised EBITDA guidance scope of $290mm—$340mm connected this. Despite the Q2 trends, absorption inactive expects its U.S. concern to marque up ~60%—70% of FY'24 sales.

Figure 2.

Source: NXT Q2 Investor Presentation

Critically, NXT ended the 4th with a grounds backlog of implicit $3Bn. This was up from $2.6Bn astatine the extremity of its fiscal 2023. Management reports that ~80% of the company's revenues are present recurring successful nature, adding predictability to currency flows downstream.

I'd besides constituent retired the institution is good capitalized connected the liquidity front. NXT near the 4th with $355mm successful cash, a surplus connected its indebtedness of >$200mm. It had entree to full liquidity of $855mm by the extremity of Q2. The bulk of this ($500mm) is made up from an unused recognition enactment of $500mm. NXT besides completed a secondary offering of its communal banal to the marketplace rolling into Q3. This allowed its existent shareholders (on the organization side) to set their ownership, but much importantly, it accrued the stock's liquidity. As a result, Flex (NXT's holding company) present owns < 52% of the shares outstanding, which whitethorn proceed to dilute further down the track. This is an indispensable constituent for the public, arsenic it means greater liquidity successful the non-institutionally held stock, and provides a greater interval for those agelong of NXT to size up without incurring bid capable issues astatine the bid publication (meaning, you're much apt to get filled astatine your bids/offers astatine the market, vs. higher oregon lower).

Figure 3.

Source: NXT Q2 Investor Presentation

3. Sentiment appears positive

Sentiment is 1 of the 3 oregon 4 catalysts needed to spot immoderate banal merchantability astatine higher multiples. We spot the affirmative sentiment successful NXT's equity banal successful 2 ways.

One, the terms operation of the NXT stock terms is constructive successful my view. Figure 4 outlines this good connected the regular unreality chart:

• For starters, some terms and lagging lines supra the cloud, pursuing a bullish transverse successful August.
• Note the banal has bounced disconnected the unreality basal 3 times since April, and traded good disconnected the unreality apical successful July x2.
• This is bully info from the existent presumption of the pricing line. A bounce from present would beryllium a bullish constituent successful my view.
• We person upsides to $51.70 connected the constituent and fig studies successful Figure 5 to corroborate this view. A interruption higher would perfectly activate this point. We shouldn't disregard the downside people to $40.70 either, hence, the stock's adjacent moves are captious to signifier a directional view.

Figure 4.

Data: Updata

Figure 5.

Data: Updata

Two, Wall Street analysts have revised up their gross and net targets 12 and 11 times successful the past 3 months, respectively. Consensus present calls for $2.3Bn successful income for FY'24 and $1.60/share successful earnings, 20% and 610% YoY growth, respectively. I typically look for astatine slightest 3 ratings higher successful 3 months to suggest sentiment is shifting higher. That 12 revisions person been made to the upside is simply a bullish constituent successful my view.

Valuation and conclusion

The banal sells astatine 26x guardant earnings and 21x guardant EBIT. A thoughtful investigation of maturation indispensable beryllium factored into these shorthands, however. Management guides to $1.65 successful net astatine the apical extremity of growth, statement projects $1.60 for FY'24 and $2.06 for FY'25. Both are stellar maturation numbers, successful the realms of 600% YoY, and ~260% disconnected trailing EPS. Say it does $1.60, and you instrumentality the 260% implicit maturation downstream. The PEG ratio astatine 26x guardant is conscionable 0.1x connected this, demonstrating the maturation yet to beryllium priced in, by champion estimation. Looking to the FY'24 projections of $2.06, assigning the 26x aggregate gets you to $53.55/share, 26% worth spread arsenic I write. This supports a bargain standing successful my view.

In short, NXT offers a selective accidental to thrust connected the laurels of the IRA and its benefits to renewable vigor investment. The institution has a productive installed basal expanding domestically and globally. Sentiment is affirmative successful the banal and Wall Street is tremendously bullish connected the banal arsenic well. Net-net, I complaint NXT a buying, eyeing $53 arsenic the adjacent terms objective.

Equity strategist, planetary equities, astatine Bernard Family Office. Analyzing marketplace trends to archer investors what's the champion investments based connected macroeconomic, idiosyncratic factors.Shoot maine a connection to speech commercialized ides oregon portfolio construction. Disclaimer:Please retrieve to behaviour your ain owed diligence.