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

Key Highlights:

• Increased power production: During Q1FY22, the company witnessed an increase in its total power production to 1,681 GWh (Gigawatt hours) as compared to 1,630 GWh in Q1FY21. The wind power stations which contribute almost 79.5% of the total power production, reported 1,337 GWH in Q1FY22, which is higher than 1,312 GWH in Q1FY21, where the majority of the push was from the Canadian region. Considering the growing demand for renewable energy sources, the company’s solar power stations also saw a surge in production numbers to 115 GWh during Q1FY22 vs 77 GWh in Q1FY21. Below is the pictorial representation of the segment & geographical breakdown of the company’s operations.     

Source: Company filing

• Industry beating profitability margins: In Q1FY22, the company reported increased production and optimized operating expenses, whereas the rising prices further supported the company to attain higher profit margins as compared to the industry median, which is represented below.

Source: Refinitiv, Analysis by Kalkine Group

• Growth outlook: The group is committed to make the USA as its priority market and expanding its presence in the European market aiming for additional growth. Recently, the company announced the successful completion of a partnership with Hydro-Quebec and Energir to create three 400 MW power projects on Seigneurie de Beaupre’s land. Below is a summary of how the company is aiming to grow and diversify to meet the growing demand.

Source: Company filing

• Strong liquidity: The group reported an increase in its cash flows from operations to CAD 136 million during Q1FY22 as compared to CAD 115 million in Q1FY21. Further, the company accumulated higher cash and cash equivalent of CAD 288 million during the Q1FY22, against CAD 256 million in Q4 FY21. The strong liquidity helps the company to meet its day-to-day operational expenses along with carrying out the expansionary plans as well.
  

Risks associated with investment

The company is majorly exposed to unfavorable changes in weather conditions, which can dampen the power production. A few other key risks the group is vulnerable to are, any slowdown in the economic activity that can hamper the demand for the power consumption, foreign currency risks, credit risks, etc.  

Financial overview of Q1FY22 (Expressed in millions of CAD)

Source: Company Filing

• The group reported an increase in revenues from energy sales and feed in premium to CAD 227 million during Q1FY22, against CAD 206 million during Q1FY21. The significant increase in revenue is contributed by the wind power stations which reported sales of CAD 192 million in Q1FY22 vs CAD 171 million in Q1FY21.

• The operating income rose to CAD 91 million in Q1 FY22 vs CAD 77 million in Q1 FY21.

• The group reported an increase of 42.5% in its net earnings to CAD 57 million during Q1FY22 as compared to CAD 40 million in Q1FY21.

 Valuation Methodology (Illustrative): Price to Cash-flow based

Analysis by Kalkine Group

Stock Recommendation:

The EBITDA of the company rose to CAD 173 million during Q1FY22 against CAD 151 million in Q1FY21, on account of higher production and higher operating income. The management is optimistic to raise the installed capacity from 2,447 MW as of May 10, 2022, to 4,400 MW by FY25, and for that, the group is committed to re-invest 50% to 70% of its discretionary cash flows in such growth-oriented projects. The rising demand for renewable and clean energy, especially because of higher oil and natural gas prices, could be a key catalyst for the company to maintain the higher revenue figures. On the valuation front, the stock is measured on the Price to Cash-flow based multiple and we have considered Northland Power Inc., TransAlta Renewables Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the last closing price of CAD 37.96 on May 11, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

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

Note: The reference data has been partly sourced from REFINITV

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.