Northland Power Inc. (TSX: NPI) is a Canada-based power producer focused on developing, building, owning, and operating clean and green power infrastructure assets in Canada, Europe, and other selected global jurisdictions.

Key Highlights:

• Stable Dividend Distribution: The corporation has a solid history of regular dividend payment, backed by stable cash flows, which is a key positive. Notably, the stock of NPI also carries a dividend yield of ~3.074% on an annualized basis, which looks attractive considering the persisting interest rate scenario. The company declared a total dividend of CAD 196.199 million in 9MFY21, higher than CAD 184.128 million in pcp.              

Dividend History Since 1998 (Source: Company Presentation)

• Promising Outlook from Spanish Portfolio: During Q3FY21, the company acquired a Spanish operating portfolio of onshore renewable projects with a total combined net capacity of 551MW. This places the group under the top ten renewable power operators in Spain and provides attractive opportunities for the renewables segment in the coming years. As per the estimate, Spain would require an additional ~80 TWh or ~37 GW of renewables to meet its 70% renewable electricity target by 2030. Moreover, the country is also focusing on the coal fleet phase out by 2025 and the nuclear fleet phase out by 2036, which offers ample scope for expanding renewable energy.
  

• Decline in Finance Costs: NPI reported a lower finance cost of CAD 242.806 million in 9MFY21, a decrease from CAD 270.074 million in pcp, supported by lower interest cost on debt, borrowings, and bank fees. Continuation of the above trend is likely to support the company’s bottom line in the coming days.

Source: Company Report

• Impressive Pipeline: The group operates through a diversified portfolio of both offshore and onshore wind and solar projects, which are strategically located across different parts of the world. Moreover, the company has advanced and secured several projects which would increase its installed gross capacity by about 2,710 MW in the coming years. These projects, once operational, are expected to enhance the company’s adjusted EBITDA and free cash flows.

Source: Company Presentation

• Ample Liquidity to Support Future Operations: NPI’s existing liquidity, according to the management, is sufficient to handle the impact of COVID-19 while pursuing its growth plans. On September 30, 2021, it had CAD 824 million in cash and liquidity, including CAD 784 million available under its syndicated revolving facility and a cash balance of CAD 40 million.

• Lucrative Opportunities from Early-Stage Development Processes in Japan: During September 2021, the Japanese government selected four new sea areas as “promising areas” for offshore wind development under its Round Three process. Notably, the company is developing its Chiba offshore wind project in partnership with Shizen Energy and Tokyo Gas, which falls under the above promising areas list. In addition, the group is also exploring an opportunity in the Akita Prefecture in the Katagami region, which also comes under the above category, through a collaboration with Mitsui and Osaka Gas. Upon completion, the above two projects are expected to add at least 900MW production capacity.

• Positive Technical Indicators: On a daily chart, the NPI stock closed near the lower range of the 20-day Bollinger band, indicting a possible up move from the current level. Moreover, the 14-day RSI is hovering near its oversold zone of 45.2753, further providing room for price appreciation.

Technical Price Chart (as on November 26, 2021). Source: REFINITIV, Analysis by Kalkine Group

Q3FY21 Financial Highlights:

• Reduction in Sales: The company posted total revenue of CAD 432.078 million in Q3FY21 v/s CAD 470.867 million in the previous corresponding period. The fall in revenue was primarily attributable to the historically low wind resource across all three offshore plants and reduced turbine availability at Nordsee One due to the RSA replacement campaign.

• Slide in Gross Profit: Its gross profit was reduced to CAD 383.449 million from CAD 418.403 million. As mentioned above, the decline was due to lower income, partially offset by a lower cost of sales (CAD 48.629 million v/s CAD 52.464 million in pcp).

• Lower Operating Income: NPI’s operating income for Q3FY21 amounted to CAD 89.018 million, compared to CAD 179.477 million in pcp. The quarter witnessed higher operating costs, an increase in general and administrative expenses and higher development costs, which resulted in suppressed profitability.

• Posted Net Loss: It posted a net loss of CAD 4.668 million against a net profit of CAD 108.964 million in pcp, mainly due to lower operating income and higher income taxes, partially offset by a lower finance cost (CAD 80.186 million v/s CAD 88.787 million in pcp).

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks Associated with investment

The company’s business activities are exposed to various risks and uncertainties such as regulatory changes, rapidly changing market dynamics and volatility in commodity prices, interruptions of production, delays in growth projects, increased credit risk with counterparties, and foreign exchange volatility, etc.

Top-10 Shareholders

The top ten shareholders of the company together hold approximately 28.54% stake. Mr James C Temerty (Co-Founder of NPI) and BMO Asset Management Inc. are the major shareholders in the company with an outstanding position of 6.64% and 4.80%, respectively.

Source: Refinitiv

Valuation Methodology (illustrative): EV to Sales based

Stock Recommendation

The long-term prospects of the company remain positive, as most of the developed nations are focusing on renewable energies to preserve the environment. NPI is fully prepared to grab the opportunities arising from Offshore Wind, Onshore Wind, Solar, Gas Turbine, Electricity Transmission, and Distribution segments. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Boralex Inc, TransAlta Renewables Inc, etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of NPI at the last trading price of CAD 39.04 on November 26, 2021. 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached

One-Year Technical Price Chart (as on November 26, 2021). Source: REFINITIV, Analysis by Kalkine Group  

*The reference data in this report has been partly sourced from REFINITIV. 

*Recommendation is valid on November 29, 2021 price as well.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.