Enviva (EVA -4.09%) manufacturers wood pellets and ships them overseas as an energy source. In this Motley Fool Live segment from “The High Energy Show,” recorded on June 7Fool.com contributor Tyler Crowe explains why this unusual energy business could be a reliable wealth generator for investors.
Tyler Crowe: Enviva, which is, as we mentioned, during the draft, they manufacturer wood pellets and ship them overseas as an energy source. Sounds really stupid, really boring. It is kind of a silly and boring game. But here’s what makes it very interesting as an energy play. One thing that wood pellets can do very quick, very easily and very cheaply is replace coal. If you have a litany of coal power-generating, and you need power, but investing the billions of dollars in converting over to something else where maybe renewables isn’t as lucrative because of the limitations of solar or wind in your area, it’s a very lucrative alternative. And it’s something similar to Cheniere They structure their business in the same way where they build these 20-year contracts for off-take agreements with power companies. Most notably, they have a lot in Japan and a little bit in the UK, not as much, but they’ve been building up in there and I think also one in Germany. I’d have to go check on the specifics to it.
But the idea being like, very strong, as long as the operations of the business work relatively well, as long as the ports are working fine, it has a lot of revenue visibility, it allows them to throw off a pretty decent amount of cash, I believe that they are yielding about 3, 4.5 percent, was the last time I checked, double-checking it now, 4.2 percent, that price is spiking, baby. It’s one of those things where again, it’s not a home run hitter. It’s not going to be one of the ones where you’re going to be like going 10x from now. But something that can modestly grow through new off-take agreements, maybe you increase your capacity from port, things like that. You’re doing these on 20-year contracts, incrementally you get bigger, you’re throwing off a decent amount of cash to investors. It’s like I said on The Industrial Show just about an hour ago, it’s a high base percentage kind of company. It’s a lot of singles, doubles, gets walks, you’re not hitting home-runs. But it’s going to be a wealth creator for you and something that will be attractive for quite some time.