Sunrun maintaining cash position but investors looking for more

Sunrun Inc. expects to boost installations 15 percent this year and may increase its cash balance, as the largest U.S. independent residential solar company inches toward becoming cash-flow positive without sacrificing long-term stability.

“If you just maximize current-year cash flow, you might not ultimately be building the best long-term shareholder value,” Edward Fenster, Sunrun’s chairman, said in an interview Monday in his San Francisco office. “There’s a balance there that you need to strike.”

Sunrun could potentially boost cash by selling some of its rooftop solar systems, but “that’s not the strategy,” Fenster said. The company makes money from long-term leases and power purchase agreements with homeowners, and the immediate gains from such a sale could blunt its long-term revenue.

But investors want to see more cash, said Andrew Hughes, an analyst at Credit Suisse Group AG in San Francisco. Sunrun has maintained a cash balance of at least $200 million for six straight quarters, and Hughes expects Sunrun to end the year with about $220 million in cash — about $20 million more than at the end of 2016.

“The $20 million net cash flow coming on in 2017 won’t cut it for investors,” Hughes said in an interview Monday. “They want to see substantial net cash flow.”

Fenster didn’t say when Sunrun expects to become cash-flow positive. In its most recent quarterly earnings conference call earlier this month, Sunrun said it would “maintain or potentially increase” its cash position this year.

‘Profit Focus’

“We have more of a profit focus than a megawatt focus,” Fenster said Monday.

To be sure, Sunrun’s is better-positioned than many of its peers. It has relied on project-level loans instead of debt on its balance sheet to fund recent growth and in December, it arranged $100 million from utility National Grid Plc through an equity partnership.

Peers SolarCity and Vivint Solar Inc. long chased growth at all costs, and are now recasting themselves. SolarCity, bogged down by corporate debt, was bought by Tesla Inc. last year, while Vivint is dialing back installations as more customers shift to loans and cash sales.

Sunrun expects its installation growth to surpass the total U.S. market this year. While that means it will gain market share, it’s still going to be slower growth than 2016.

“It isn’t generating enough cash,” Joseph Osha, a San Francisco-based analyst at JMP Securities LLC in San Francisco, said in an interview Monday. “But growing more slowly actually helps you reach that. You need less money upfront.”

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