Northland Power Inc.

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

Key highlights

• Guidance on adjusted EBITDA and free cash flow for 2021: The management expects adjusted EBITDA to be in the range of CAD 1.1 billion to CAD 1.2 billion. Adjusted EBITDA is expected to remain consistent relative to 2020 guidance levels and Free Cash Flow to be in the range of CAD1.30 to CAD1.50 per share. Free Cash Flow per share is expected to be lower than the revised 2020 guidance of CAD 1.60 to CAD 1.70 per share. The reason for this decline in 2021 is a higher project development and corporate costs to support growth.

Source: Company

• Increase in cash and cash equivalents: The resilient business and healthy cash flow generation helped the company in maintaining strong cash and cash equivalents position at the end of the year, which grew by more than 62% to CAD 435 million.

• Robust long-term outlook: The Company is at an inflection point, given the accelerating global trend towards de-carbonization and electrification and its extensive offshore wind development portfolio. It has advanced and secured several offshore projects' rights and would increase its installed gross capacity by at least 4 to 5 GW over the next five years. These projects, once operational, are expected to more than double the Company’s adjusted EBITDA.

• Reliable dividend payment: The company has paid a consistent dividend to its shareholders since 1997, which is a key positive and indicates operational resiliency and stable cash flows. Recently, the group paid a monthly dividend of CAD 0.10 per share (CAD 1.20 on an annual basis).

Source: Refinitiv 

Financial overview

Source: Company

• The company posted total revenue of CAD 2.06 billion in FY 2020, against CAD 1.66 billion in the previous corresponding period. The rise in revenue was primarily due to higher income from electricity and related products, along with additional income from regulated electricity segment.
• A healthy growth was witnessed in the operating income, as it stood at CAD 900.2 million in FY 2020, compared to CAD 813.7 million in pcp. Higher revenues helped the company in posting higher operating income, partially offset by increased operating expenses.
• The company's net income increased slightly to CAD 485 million compared to CAD 451.7 million in the previous corresponding period. Reasons stated above were the prime reasons behind the increased net income. 

Risks associated with investment

The company’s business activities are exposed to a variety of 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. 

Valuation Methodology (Illustrative): EV to Sales

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The Company has successfully established a global platform with geographic and technology diversification across four continents and actively pursues new sustainable infrastructure opportunities that encompass a range of clean technologies, including onshore and offshore renewables and electricity grid networks. The Company’s long-term growth strategy is centred on developing its extensive pipeline of offshore wind projects in Europe and Asia, which can increase long-term cash flow growth potential. Therefore, based on the above rationale and valuation, we suggest a “Hold” recommendation on the stock at the closing price of CAD 43.97 on March 17, 2021. We have considered Boralex Inc, TransAlta Renewables Inc, Brookfield Renewable Partners LP. as the peer group for the comparison.

Price Chart. Source: Refinitiv (Thomson Reuters)

Ballard Power Systems Inc

Ballard Power Systems Inc (TSX: BLDP) is a clean energy growth company, which is engaged in proton exchange membrane fuel cell development and commercialization. The company's main business is the design, development, manufacture, sale, and service of fuel cell products.

Key highlights 

• Change in the management: The company has appointed Paul Dobson as Senior Vice President and Chief Financial Officer, effective March 29th, 2021. 

• Increasing penetration in key markets: The company intends to maintain focus throughout 2021 on Heavy- and Medium-Duty motive applications – including bus, commercial truck, train and marine markets, to increase penetration in the key markets of China, Europe and California.  BLDP further expanding its footprint into new geographies anticipating lucrative projects other than the existing markets. 

• Steady order backlog: At the end of FY 2020, the order backlog stood at USD 117.8 million, down from USD 128.1 million, against Q3 2020, reflecting USD 28.6 million in shipments and USD 18.3 million in new orders in Q4 2020. Moreover, the 12-month order book stood at USD 83.5 million at the end of FY 2020, up from USD 79.6 million, against Q3 2020.

Source: Company

• Healthy liquidity: The company’s cash reserves improved to USD 763.4 million, reflecting an increase of 417% in FY 2020, against USD 147.8 million in FY 2019. This robust increase was driven by various equity offerings completed by the group in the recent past. 

Financial overview of FY 2020 (Expressed in thousands of U.S. dollars)

Source: Company 

• In FY 2020, the company posted revenues of USD 103.88 million down by 2.0% against USD 105.72 million in FY 2019. The decline was majorly attributed to the Material Handling segment, which showed a YoY dip of 51.0% followed by a 20% decline in the Technology solutions segment. However, the decline in revenue was partly offset by the increased revenue from the Power and Heavy-Duty Motive segments.
• Gross margin stood at USD 20.98 million in the reported period, against USD 22.33 million in pcp. The decrease was primarily due to lower total revenue and a shift to lower overall product margin and service revenue mix.
• The company posted higher operating expenses at USD 60.75 million, against USD 47.78 million. The rise in operating expense was mainly due to higher R&D, G&A and sales and marketing expenses.
• On the back of lower gross margin and higher operating expenses, the company posted higher net loss at USD 51.38 million, against USD 39.05 million in pcp. 

Risks associated with investment 

The company aggressively entering in various Joint Ventures and collaborations for expanding its Material Handling and Heavy-Duty business. Failure of any of these treaties could adversely impact the profitability of the company. Additionally, BLDP restricted to limited number of customers for its Heavy-Duty market mainly on the Chinese customers, which could impact the company’s operations. Furthermore, any change in regulations and government policies could affect the overall business of the company. 

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The Company's Q4 2020 and full-year results were consistent with its management's internal projections based on expected impacts of COVID-19. In Q4 and throughout 2020, COVID-19 created uncertainty and adversely impacted operations for certain customers along with order intake, although they witnessed higher than expected activity levels in the sales pipeline. Furthermore, the company intends to maintain focus on Heavy- and Medium-Duty Motive applications throughout 2021, to increase penetration in the key markets of China, Europe and California. We have valued the stock using the EV/Sales based relative valuation method and have arrived at a single-digit downside (in percentage terms). Therefore, based on this, we suggest a "Watch" recommendation on the stock at the closing price of CAD 32.05 on March 17, 2021. We have considered Fuelcell Energy Inc, Plug Power Inc, etc. as the peer group for the comparison.

1-Year Price Chart (as on March 17, 2021). Source: Refinitiv (Thomson Reuters)

FirstService Corporation

FirstService Corporation (TSX: FSV) is a provider of residential property management and other essential property services to residential and commercial customers. The company operates through two business divisions namely FirstService Residential and FirstService Brands. First Service Residential is the leading residential property management service provider in North America. First Service Brands is the essential property services provider to residential and commercial customers.

Key Updates:

• Reduction in Debt: The company successfully reduced its debt by 23.09% on y-o-y basis to USD 589.604 million in FY20 v/s USD 766.623 million during FY19. This decline has resulted in lower finance costs amounting to USD 24.318 million in FY19, as compared to USD 32.080 million in FY19. Moreover, a reduction in the total debt would likely to increase the financial flexibility.
• Recent Acquisitions: The company reports the acquisition of Minneapolis franchise, through its subsidiary California Closets. The acquisition is likely to accelerate its growth across Midwest U.S. and would help in migrating production to its centralized eastern manufacturing center. Earlier, the company acquired Spectrum Restoration Services Ltd. and Trilink Restoration Services, LLC on March 04, 2021. These acquisitions are in line with the company’s strategy to boost its geographical presence and would further provide better service to its regional and national clients.

FY20 Financial Highlights:

• FSV announced full-year result, wherein the company posted revenues of USD 2,772.415 million, as compared to USD 2,407.410 million in FY19. The growth was supported by significantly higher revenue from FirstService Brands segment (USD 1,357.294 million versus USD 995.412 million in FY19).
• Operating earnings stood at USD 169.412 million, as compared to an operating loss of USD 174.419 million in FY19. The quarter was marked by higher selling, general and administrative expenses (USD 628.523 million versus USD 546.257 million in FY19), increase in depreciation expense (CAD 51.918 million versus USD 40.859 million FY19).
• Net earnings stood at USD 109.590 million, as compared to a net loss of USD 227.631 million in previous financial year.
• The group reported cash and cash equivalents of USD 184.295 million, while total assets were recorded at USD 2,196.540 million.

FY20 Financial Highlights (Source: Company Report)

Risks: The company’s operations are directly co-related with the real-estate sector, and due any economic downturn, the operations might get hindered, which might lead to a slide in the overall performance of the company.

Stock Recommendation:

During FY20, the group reported higher cash from operations of USD 291.765 million in FY20 compared to USD 107.808 million in FY19. Moreover, the company has an impressive business model, and its revenue recorded a 5-year CAGR of ~17%. The group has a diversified revenue base with balance risk profile, and with the recent acquisitions, the group is expected to deliver improved business prospects in the coming quarters. In the recent past, in order to combat the ongoing slowdown, the company took prudent measures like capital expenditures reductions, several expense containment initiatives etc. in order to preserve the liquidity. However, on the valuation front, the stock is available at a forward EV to EBITDA multiple of 22.6x, which is higher compared to the industry (Real Estate Operations) median of 13.6x. Hence, we recommend a ‘Watch’ stance on the stock at closing price of CAD 188.5 on March 17, 2021.

One year-Price Chart (as on March 17, 2021). Source: Refinitiv (Thomson Reuters)

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.