Topic: On Friday, Cloudberry announced the sale of three Norwegian hydro power plants, revealing significant hidden value within the company's hydro portfolio.

In detail, Cloudberry entered into a share sale and purchase agreement with Norsk Vannkraft (small scale hydro-focused IPP) to sell its hydropower plants Åmotsfoss, Selselva and Nessakraft with a combined capacity of 19 MW and estimated annual energy production of 77 GWh. The deal should close towards the end of June.

The transaction’s total deal value stands at NOK 703 (NOK 37m/MW), whereof NOK 205m (eNuW) is project debt. Hence, Cloudberry receives NOK 498m of cash (eNuW). Importantly, the book value of those three asset was NOK 455m (eNuW). Not only does this transaction recycle some of Cloudberry’s funds (part of the company’s growth strategy) but it also generates a nearly NOK 250m book gain.

Due to favourable purchase prices in 2021 and appreciating prices of assets during the past few years driven by an upward shift in the power price curve, Cloudberry achieved an inherent IRR of ~55% p.a.

Most importantly, this transaction nicely underpins the potential of the hidden reserves looming in Cloudberry’s balance sheet. Following this transaction, Cloudberry’s remaining (proportionate) hydro portfolio consists out of 60 MW, which could also easily be transformed into cash to further develop new assets, in our view. Before the transaction, roughly 1 TWh of annual production capacity was fully funded, including the 40 MW wind projects currently under construction, the 18 MW Munkhyttan wind farm and parts of the Duvhallen and Stenkalles projects.

The recycled cash (~ NOK 500m) offers further opportunities and flexibility in financing organic growth. Assuming an industry standard leverage ratio of 70% (project debt), the sale of the three hydro assets allows Cloudberry to finance new projects up to a volume of NOK 1.6bn. For comparison, the recently acquired Odin portfolio, which generated 311 GWh had an estimated EV of NOK 2.16bn (eNuW).

Once again, Cloudberry executed a value creating transaction. The additional funds should allow the company to further accelerate growth of its portfolio. We reiterate our BUY recommendation with a new PT of NOK 22 based on SOTP.