Enviva Partners LP (EVA) a top small cap for 2021 with shares currently +17% YTD and an interesting clean energy play.

Enviva aggregates wood fiber and processes it into wood pellets with the majority sold via long-term, take-or-pay off-take contracts in the UK, Europe and Japan. EVA operates nine plants with a combined production capacity of approximately 5.3 million metric tons of wood pellets per year.

EVA customers use wood pellets as a substitute fuel for coal in dedicated biomass or co-fired coal power plants. Wood pellets serve as a suitable “drop-in” alternative to coal because of their comparable heat content, density and form. It enables major power, heat or combined heat and power generators to profitably generate electricity and heat in a manner that reduces the overall cost of compliance with certain mandatory greenhouse gas emissions limits and renewable energy targets while also allowing countries to diversify their sources of electricity supply. Unlike intermittent sources of renewable generation like wind and solar power, wood pellet-fired plants are capable of meeting baseload electricity demand and are dispatchable (that is, power output can be switched on or off or adjusted based on demand). The capital costs required to convert a coal plant to co-fire biomass, or to burn biomass exclusively, are a fraction of the capital costs associated with implementing offshore wind and most other renewable technologies.

EVA’s raw materials are byproducts of traditional timber harvesting, principally low-value wood materials, such as trees generally not suited for sawmilling or other manufactured forest products, and tree tops and limbs, understory, brush and slash that are generated in a harvest. Wood fiber demand is complementary to, rather than in competition with, demand for high-grade wood for use by most other forest-related industries, such as lumber and furniture making. For example, improvements in the U.S. housing construction industry typically increase the demand for construction-quality lumber, which in turn increases the available supply of the low-cost pulpwood and mill residues that we use in wood pellet production.

EVA has a market cap of $2.4B and trades 21.4X Earnings, 12X EBITDA and has a 5.9% dividend yield. EVA revenues are seen rising 27% in 2021 and 13.5% in 2022 with EBITDA gaining 36.8% and 25% respectively. EVA also has a long sight-line for demand. EVA’s long-term, take-or-pay off-take contracts provide for a product sales backlog of $14.6 billion and have a total weighted-average remaining term of 12.8 years from February 1, 2021 with plants fully contracted through 2025.

In closing, EVA has a strong opportunity to capture demand for electricity generation and offers attractive valuation, strong growth, and a large dividend yield. It is a small cap to consider for the long-term. EVA has a dominant position in a highly fragmented industry. As a number of industries start to look at decarbonization, EVA is positioned to capture a lot more market share.