Taking a cue from the success of the Mobileye $MBLY IPO late last year, the IPO market so far in 2023 is gaining momentum.
Nextracker $NXT sits at the high end of the utility-scale solar panel infrastructure market. The #2 player, Array Technology $ARRY, had a very successful IPO in late 2020. Array stock tumbled in 2021 as supply-chain problems and higher material costs disrupted their business. [More on this as an NXT risk factor below.]
Solar panels that can move better generate more electricity. Nextracker offers the most advanced and innovative hardware in the market. They also provide a portfolio of software that helps optimize the management and control of the overall system. This approach also allows operators to take action to reduce losses from natural events like hail and extreme winds.
Nextracker $NXT priced their IPO above the range last week at $24 and has since traded up consistently to the current $31 level. The company is a spinoff of Flex Ltd $FLEX and TPG $TPG assisted with the transaction and took an investment stake in Nextracker in the process.
Why Own It
Solar Power Tailwind: Large-scale solar "has arrived" thanks to declining costs, higher energy prices, unreliable energy supply chains, and government policies and inducements.
Business Acceleration: Installation and order activity have picked up and will drive better top-line growth and margins. A substantial backlog provides visibility into future growth. The backlog growth rate has doubled to 53% in 2023 to reach $2B.
Favorable Industry Economics: Some are lamenting lower raw material costs and price competition at the panel level. These conditions help "upstream" companies like Nextracker. On the flip side, higher costs for labor and maintenance help justify the expense for the features Nextracker provides.
Software & IP: It's not rocket science, but there are quite a few innovations in the mechanical engineering of the structures, the electronic control systems, and the software running the system. If you count the "pre-Nextracker years," the team has been working on this problem for thirty years. Nextracker was launched as an entity in 2013. They have accumulated over 350 patents.
Long Runway: Solar is still a tiny slice of the global energy supply. It's no panacea, but it will ultimately have a much more significant share. New large-scale opportunities like the electrification of mining infrastructure are rapidly emerging.
Valuation Upside: Our PFV supports a potential share price of $44 to $53 versus the current $32. Some more valuations and a comparable table are included below.
Some Risks
Like any newly public company, there are many risk factors; in the case of this company, 34 pages of them. If you intend to own any stock, you should always read through the risk factors. [Seriously, it is a refreshing exercise!]
Lawyers tend to make them difficult to get through. Many are too general and apply to every company: demand may be weak, severe weather can happen, we might not do our jobs, competition, our business fluctuates, etc.
But in the case of the Nextracker filing, it's a pretty good one. I like to highlight the risks that I would rank highest to an equity investor.
