Northland Power Inc

Founded in 1987, Northland Power Inc (TSX: NPI) is an operator and owner of sustainable infrastructure assets. It produces electricity from renewable and clean-burning natural gas resources.

 Recent News

24 June 2020: The Company announced the signing of nearly CAD 465 million debt financing for Empresa de Energía de Boyacá (EBSA) in Colombia. The financing is anticipated to close in early July.

First-Quarter Trading Update (for three months ended 31 March 2020) (CAD Million)

 (Source: Company Website)

As per the updates released on 13 May 2020, the financial and operational performance of the Company was solid as their business model is a part of essential services. During the Q1 FY20, sales surged to $668 million, reflecting 34% increase from Q1 FY19. Similarly, the gross profit and adjusted EBITDA increased by 35% and 43%, respectively, against the Q1 FY19. The Group also registered growth in Net income from $204 million in Q1 FY19 to $275 million in Q1 FY20. As of 31 March 2020, Northland reported a solid state of financial flexibility with over $423 million in cash and liquidity. Given the reliable performance, the Company kept the guidance intact for FY20, as projected in February 2020.

Share Price Performance

Daily Chart as of 2 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

NPI’s shares were trading at CAD 34.31 on 2 July 2020 (after the market close), up by 0.97% against the previous day closing. Stock's 52 weeks High is CAD 34.37 and Low is CAD 20.52. From the technical standpoint, shares were trading well above the short-term support level of 10-day, 20-day, and 50-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Risk Assessment

The impact of Covid-19 can lead to reduced power demand within the renewable energy sector. Moreover, if low wholesale market prices persist for a prolonged period, it can also hamper the revenue generation and profitability.

Conclusion

Due to the essential nature of the business, the operational and financial performed remained strong during the pandemic. Moreover, the recent update (in March 2020) from Standard & Poor’s reaffirmed the Group’s credit rating as BBB (stable). Also, the business shall get the boost from the acquisition of NaiKun Offshore Wind Farm and Dado Ocean Wind Farm Co Ltd. Adjacently, the Company continues to pursue new sustainable infrastructure opportunities for delivering strong returns to shareholder. Regarding the FY20 guidance, the Company is anticipating the adjusted EBITDA to be in the range of $1.1 billion to $1.2 billion and free cash flow per share to fall in between $1.70 to $2.05. Furthermore, the Company has substantial liquidity and stable free cash flow profile to withstand any potential disruption of Covid-19.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Hold” recommendation at the closing price of CAD 34.31 as on 2 July 2020 (after the market close).

First National Financial Corporation

First National Financial Corporation (TSX: FN) is a Canadian-based originator, underwriter and servicer of predominantly prime residential and commercial mortgages.

The Company announced a dividend of CAD 0.1625 per common share, payable on July 15, 2020.

Q1FY20 Financial Highlights: For the period ended March 31, 2020, FN reported a 4% y-o-y dip in its top line at CAD 274.6 million. The group reported growth across placement fees, mortgage servicing income, net interest revenue earned on securitized mortgages etc. Despite a decent growth in operational segments, the slight decline was primarily attributed to an increase in fair market value losses related to a sudden decline in interest rates. The bank of Canada lowered the interest rate to counter the COVID-19 pandemic. The group reported a net loss of CAD 2.3 million against a net income of CAD 23.5 million, a year ago. The Company reported mortgages under administration at CAD 1,13,493.61 million against CAD 1,07,034.92 million a year ago. Total assets were recorded at CAD 39,203.79 million as on March 31, 2020. The quarter was marked by 53% y-o-y growth in the single-family mortgage originations of CAD 2.8 billion.

Q1FY20 Financial Snapshots (Source: Company Reports)

Stock Recommendation: The stock of FN corrected ~23% so far this year amid free-fall in equity markets. COVID-19 pandemic is likely to take a toll on the group’s performance in the rest of 2020. In the short term, origination volume would be strong as mortgage commitments issued earlier this year would result in business during the second quarter. However, single-family origination is likely to decline going forward as a rise in the unemployment rate is expected. The trend is visible in April, and May 2020 as home buying has slowed down. Further, we expect that the group might see a delay in loan repayment from consumers on account of a fall in consumer’s income, which is likely to hamper the company’s performance. On the valuation front, the stock is trading at forward Price to Book Value multiple of 3.4x, which is significantly higher than the industry (Financial) median of 0.9x. At the last traded price, the stock is offering a dividend yield of 6.9%, which is lucrative amid the current interest rate environment. Though the company is focusing on increasing its market share as the competitors are slowing down and looking for other areas apart from single-family and commercial segments, we believe it is going to feel pressure in the near term as the mortgage demand is expected to remain low. Hence, based on the aforementioned reason, we prefer to remain on the side-line and recommend a ‘Watch’ stance on the stock at the closing price of CAD 28.15 on July 2, 2020.

FN Daily Technical Chart (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.