Abengoa Yield Downgraded At Morgan Stanley, Price Target Cut In Half: Here's Why

• Abengoa Yield PLC ABY shares have lost 48 percent in the last three months, declining steadily from a high of $32.29 on July 13.
• Morgan Stanley’s Stephen C Byrd downgraded the rating for the company from Overweight to Equal-weight, while reducing the price target from $46 to $23.
• While parent company Abengoa SA’s ABGB  financing update was positive, Byrd cited the overhang from Abengoa Yield’s share sale by Abengoa SA and the low long-term growth outlook as concerns.

Analyst Stephen Byrd said that the downgrade in rating and cut in price target followed a financing update from parent Abengoa SA. He cited concerns related to a lower growth outlook and the risk of parent Abengoa SA not fully supporting using Abengoa Yield to monetize completed contracted assets.

The dividend per share CAGR estimate for 2016-2020 has been reduced from 11 percent to 8 percent, to reflect the possibility of the parent company reducing the rate of asset development and sales, as well as to reflect Abengoa Yield’s higher dividend yield, which makes accretive acquisitions more challenging.

Although the financing update was positive, Byrd believes that the upcoming €400 million sale of Abengoa Yield’s shares by Abengoa SA could expert pressure on the share price.

The analyst wrote that the positives from the update are:

1. The huge equity raise providing financial stability to Abengoa SA, which has been exerting pressure on Abengoa Yield’s stock
2. Abengoa SA reemphasizing its commitment to “deploy €1.1b in equity capital on "concession" (contracted) assets, which will be subject to the Right of First Offer (ROFO)”
3. New investors may have an incentive to support Abengoa Yield, since Abengoa SA will have a stake of about 20 percent in Abengoa Yield.

“We see Abengoa’s uncertain financial stability and pending sale of ABY stake as continuing overhangs,” Byrd added.