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.

• Higher power production: In FY21, the company registered a 17% y-o-y growth in the power production of 5,552 GWh as compared to 4,727 GWh in FY20. The growth was aided by the significant surge in production from the solar power stations due to the acquisitions conducted during the first quarter of 2021 and the fourth quarter of 2020. Additionally, the company posted 9% y-o-y growth from the wind power stations to 4,135 GWh in FY21 (v/s 3,794 GWh in FY20).

• Growing Asset-base: A consistent growth in installed capacity indicates superior demand from its customers, which is a key positive. From 2016 to date, the company has reported a growth of 17% CAGR to 2,492 MW, within which 99% are under fixed-price energy sales or feed-in premium contracts. The above indicates stable revenue and cash flow generation, which is a key positive.

Source: Company Reports

• Consistent growth in profitability: Over the years, BLX has successfully increased its EBITDA, which indicates strong operating performance. Notably, the group has reported a 20% CAGR growth in its EBITDA since 2016, which is encouraging. Combined EBITDA in FY21 stood at CAD 535 million, which increased from CAD 513 million in FY20.                             

Source: Company Reports

Risks associated with the Investment:

 A major part of the revenue comes from the wind segment and hence, any adverse weather conditions might impact the company’s operations and might dampen the cash flows as well.

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• BLX announces its full-year results, wherein the company posted its revenue of CAD 691 million in FY21, higher than CAD 633 million in FY20, driven by higher income from energy sales.
• Operating income stood at CAD 182 million in FY21, as compared to CAD 172 million in FY20. Total operating costs stood at CAD 509 million, as compared to CAD 461 million in FY20, due to higher amortization costs, primarily offset by lower administrative expenses.
• Net earnings decreased to CAD 26 million in FY21, as compared to CAD 61 million in FY20, primarily due to higher finance costs (CAD 144 million v/s CAD 113 million in FY20) coupled with higher income tax expense.

Valuation Methodology (Illustrative): Price to Cash Flow

Analysis by Kalkine Group

Stock Recommendation:

Considering the growing asset base coupled with improved demand for the renewable segment, we expect the momentum in profitability (EBITDA growth) is likely to continue in the coming years, resulting in improved performance metrics. The company showed strong performance from its newly commenced solar segment, and the continuation of the above trend would support the company’s upcoming performance. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a single-digit upside (in percentage terms). We have considered peers like Hydro One Ltd, TransAlta Renewables Inc etc. Considering the above-mentioned facts, we give a ‘Hold’ rating on the stock at the last closing price of CAD 35.79 on February 24, 2022. 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 on February 24, 2024). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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