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:

• Consistent Dividend Payment: The company has an impressive history of regular dividend payments, backed by stable cash flows. Moreover, the stock of NPI also carries a dividend yield of ~3.344% on an annualized basis, which looks attractive considering the futuristic interest rate scenario. The company declared a total dividend of CAD 196.1 million in 9MFY21, higher than CAD 184.1 million in pcp.

Dividend History Since 1998 (Source: Company Presentation)

• Impressive Pipeline: The group operates through a diversified portfolio of both offshore and onshore wind and solar projects, which are strategically located and spread globally. Notably, the company has 366 MW of Onshore wind and solar projects, which are likely to be constructed in 2022. The company also has several capitalized growth projects of 2,907 MW which are in mid/late-stage development and are expected to be constructed in between 2023 to 2026. These projects are likely to reflect the revenues in coming annual results, driving the investors attention.

Source: Company Report

• Ample Liquidity: On September 30, 2021, it had CAD 824 million in cash and liquidity, comprising of CAD 784 million available under its syndicated revolving facility and a cash balance of CAD 40 million. The management is confident that it will be sufficient to fund its ongoing projects and working capital requirements.

• Attractive prospects from Japan: In the third quarter of 2021, the company stated that 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 900 MW production capacity.

• Emphasis on clean energy: Due to the recent Government policy of de-carbonization, the demand for renewable energy, this segment is likely to grow in the coming years. Most of the developed nations are leaning towards clean sources of energy, which provides ample room for expansion, and the company is highly poised to take advantage of it.
  

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, to name a few.

Q3FY21 Financial Highlights:

Q3FY21 Income Statement Highlights (Source: Company Report)

• Lower Topline: The company posted total revenue of CAD 432.0 million in Q3FY21 v/s CAD 470.8 million in the previous corresponding period. The decline was primarily attributable to the inadequate turbine availability at Nordsee One due to the RSA replacement campaign which resulted to lower income.

• Slide in Gross Profit: Gross profit stood at CAD 383.4 million in Q3FY21, as compared to CAD 418.4 million in the pcp. As mentioned above, the decline was due to lower revenues, partially offset by a lower cost of sales (CAD 48.6 million in Q3FY21 v/s CAD 52.4 million in pcp).

• Decline in the Operating Income: NPI’s operating income for Q3FY21 amounted to CAD 89.0 million, compared to CAD 179.4 million in pcp. The quarter was marked by higher operating costs, an increase in general and administrative expenses and higher development costs, which resulted in lower profitability.

• Reported Net Loss: In Q3FY21, the group posted a net loss of CAD 4.6 million, as compared to a net profit of CAD 108.9 million in pcp, mainly due to lower operating income coupled with higher loss from fair value of derivative contracts (CAD 33.5 million v/s CAD 15.4 million in pcp).

Top-10 Shareholders

The top ten shareholders of the company together hold approximately 28.67% stake. Temerty (James C) and BMO Asset Management Inc. are the major shareholders in the company with an outstanding position of 6.62% and 4.83%, respectively.

Source: Refinitiv

Valuation Methodology (illustrative): EV to Sales based

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation

The company expects its FY22 adjusted EBITDA within the range of CAD 1.15 billion to CAD 1.25 billion, which is likely to be higher than FY21, driven by higher contributions from German offshore wind facilities due to more normalized wind resources. Free cash flow per share is expected in between CAD 1.20 to CAD 1.40 for FY22. 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 closing price of CAD 35.88 on February 11, 2022. 

One-Year Technical Price Chart (as on February 11, 2022). Analysis by Kalkine Group

*Recommendation is valid on February 14, 2022, price as well. 

   Technical Analysis Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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.