Via Renewables Stock: Power Fading Away, Sell (NASDAQ:VIA)

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Investment thesis

Via Renewables, Inc. (NASDAQ:VIA) has been on a bearish trend since the start of 2022, and there does not seem to be any indication from its financials that this situation is about to change anytime soon. It has lost 28% in its stock value since March 2022, from $11.19 per share to $8.02 per share.

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VIA data by YCharts

The company’s cash flows provide a bleak outlook regarding its growth capabilities since it pays off most of its profits in dividends, leaving very little to invest in the company’s future.

In line with my view of a continued bearish future, the total returns have fallen by 25.71% YTD and shown high volatility. Total Returns have exhibited minor signs of recovery in the current year, but the drastic drop in its residential customer equivalent (RCE) units gives us little hope for any significant augmentation in its valuation in the near future.

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VIA Total Return Level data by YCharts

The total revenues in the TTM have shown some improvement compared to the previous 2 years, where COVID-19, its related restrictions, and other pandemic-related hindrances were assigned blame for its lackluster growth, but the revenues have been declining since before that. This turbulence offers little hope to potential investors looking for a stable investment.

Revenues

VIA Annual Report 2021

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VIA Revenue (TTM) data by YCharts

The annual report for 2021 also does not depict a positive outlook for the company’s future growth, portraying a decrease since 2018 in RCEs, which is a measure of their number of customers. These numbers have been on a steady decline, and the company blames this attrition in recent times on the COVID-19 pandemic and its inability to market door to door or through telemarketing due to orders by regulatory agencies and government authorities. The company has lost more than half, or over 55% RCEs since 2018.

VIA RCE numbers

VIA Annual reports

On top of this, the company management team cannot be considered the most experienced, with an average tenure of 1.7 years, suggesting a relatively new team is in charge.

I am bearish on Via Renewables stock as the company does not show any promise of a turnaround anytime soon, especially considering the decreasing RCEs and the management’s inability to recoup them. The non-existent growth and incoherent financials further solidify my view of their declining fortunes.

Company Overview

Via Renewables, Inc., formerly Spark Energy, Inc., is an independent, small-cap, retail energy services company founded in 1999 and headquartered in Houston, Texas.

It operates in 102 utility service territories across 19 states and the District of Columbia, serving both residential and commercial customers. They operate on an asset-light model to source power and gas, allowing them to become a competitive alternative for their customers to fulfill electricity and natural gas demand.

It operates in two segments; Retail Electricity and Retail Natural Gas. The electricity segment is involved in the transmission and sale of electricity, while the natural gas segment deals in the transportation, distribution, and sale of natural gas.

They had approximately 408,000 RCEs as of June. A major chunk of the revenue generation comes from the electricity segment, 81%, while the other 19% is accredited to the natural gas segment for the previous year.

VIA Revenue Breakdown

VIA Annual Report 2021

They purchase electricity and natural gas supply through physical and financial transactions with market counterparts and ISOs and supply electricity and natural gas to residential and commercial consumers in accordance with fixed-price and variable-price contracts.

Value as an Income stock

Via Renewables reported a dividend yield of 9.76% in the MRQ, which is the saving grace of this company from an investor’s point of view. The company had a 4-year average dividend yield of 7.89%, considerably higher than its larger competitors like MGE Energy (MGEE), which trails at around 2%.

They have, in the TTM, had a dividend payout ratio of 89.17%, which means they are paying out the majority of their earnings, which is great for those currently invested in the company but is in no way desirable for a potential investor as, ideally, a relatively lower paying out stock should be targeted in this sector.

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VIA Dividend Yield data by YCharts

The dividend does not seem any better now than it was three years ago, with no growth, largely due to stagnant revenues, which saw a small bump in the MRQ because of a non-sustainable one-off gain impacting its June 2022 financial results.

Financial Position

A closer look at the company financials reveals a downturn in Adjusted EBITDA from the previous year, with the company attributing this to operational losses pertaining to the pandemic.

Adjusted EBIDTA

VIA Revenue Annual reports

This fact is highlighted further when looking at the company’s cash flow by operating activity, which took a drastic hit from 2020 to 2021, with a reduction of $79 million or 86%. As per their annual reports, this decrease was primarily attributable to the non-recurring Winter Storm Uri-related costs of $64.4 million and other changes in working capital.

Winter Storm Uri caused major blackouts in the United States, leaving millions of people without power for days and accumulating millions of dollars’ worth of damage to the infrastructure, which massively impacted the utility sector.

Cash flows in financial activities saw a drop of $73.1 million between 2020 and 2021, which was due to an increase in net borrowing of $58 million under their Senior Credit Facility and a decrease of $12 million in distributions to non-controlling unitholders.

Cash flows

VIA Annual reports

The company’s cash flows have been highly volatile since the pandemic, and there is no indication of stability, especially with the cyclical shifts and the recession around the corner.

The company had quarterly revenues of well over $ 200 million in the pre-pandemic years but has failed to reach those heights even with the high demand and inflated prices. Looking at these numbers, there’s a good chance that existing shareholders are setting themselves up for disappointment by putting their faith in the future of this company. Potential investors looking for a stable investment should be cautious.

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VIA Revenue (Quarterly) data by YCharts

Conclusion

The company was not dealt the most favorable hand in terms of macroeconomic factors, which devastatingly affected its operations and incurred heavy operational losses.

Even though VIA have been paying out high dividend yields, these are not well covered by their cash flows, making their dependability and reliability in both the short and long term very questionable, depicting a grim outlook for potential investors.

All these factors forecast a bleak future for the company, and investors of both short and long-term inclinations should be wary of gambling away their investment funds.

From an investor’s perspective, Via Renewables Inc. does not give us any reason or cause for this to be in your portfolio, which is evident through its ever-decreasing customers, making me rate the stock as a “Sell.”

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