Boralex Inc (TSX: BLX) is an electric utility company which operates in the development, construction, and operation of renewable energy power facilities. The group controls a portfolio of electricity-producing plants that utilize wind, hydroelectric, thermal, and solar fuel sources.

Key updates:

• Highly leveraged financials: At the end of Q1FY22, the company reported a higher D/E ratio of 3.43x, as compared to the industry median of 2.51x. This remains a key concern for the group as it leads to higher finance costs along with a lower profitability for the firm. Moreover, a higher D/E would lead to lower financial flexibility for the firm.
  

• Increase in balance-sheet risk: The investors of BLX are prone to higher balance sheet risks, as the company’s long-term debt to total capital stood considerably higher at 69.4% in Q1FY22, as compared to the industry median of 33.8%. Hence, the capital management of the firm is significantly weak compared to the industry peers.
  

• Decline in installed capacity: Total installed capacity declined to 2,447 Megawatt on May 10, 2022, from 2,492 Megawatt in Q4FY21. This was primarily due to the recent sale of the company’s Senneterre thermal power station and La Bouleste wind farm in France. This might hinder the upcoming growth prospects and might result into lower productivity.

Stock Recommendation:

The company’s operations might be hindered due to adverse weather conditions, sluggish demand due to demand cyclicality etc. Notably, Wind conditions both in France and Canada are usually more favourable in the winter, and hence, the segment might remain sluggish during the summer months. Moreover, the stock of BLX is available at a higher valuation of EV to Sales multiples of 9.1x on NTM basis, as compared to the industry (Utilities) median of 4.8x. Considering the above-mentioned facts, we give a ‘Sell’ rating on the stock at the last closing price of CAD 38.61 on May 31, 2022.

One-Year Technical Price Chart (as on May 31, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

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