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

Key Updates:

• Prioritizing on clean energy: Due to the recent Government policy of de-carbonization, the demand for renewable energy, this segment is likely to grow in the coming years. Most of the developed nations are leaning towards clean sources of energy, which provides ample room for expansion, and the company is highly poised to take advantage of it.

• Sale of Iroquois Falls and Natural Gas-Fired Generating Facilities: On April 07, 2022, the company reported the sale of its Iroquois Falls and Kingston efficient natural gas-fired generating facilities, both located in Ontario near to the Validus Power Corp. The proceeds from the sale would be used for the development capital required for its long-term growth objectives. Notably, the two facilities have a combined operating capacity of 230 megawatts (MW).

• Surge in cash flows: The company reported a higher cash from operations of CAD 1,609.2 million in FY21, as compared to the industry median of CAD 1,321.6 million in FY20. A higher cash flows denotes improved liquidity position.

Risks Associated with investment

The company’s business activities are exposed to various 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, to name a few.

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• NPI announces its FY21 results, wherein the company reported total sales of CAD 2,093.2 million, slightly higher than CAD 2,060.6 million in FY20. The period was marked by higher income from the regulated electricity segment, partially offset by a sluggish performance from the electricity and regulated products.
• Gross profit stood improved to CAD 1,879.7 million, as compared to CAD 1,858.2 million, supported by higher income, partially offset by higher cost of sales.
• Total expenses increased to CAD 1,085.9 million from CAD 973.3 million in FY20. Operating income slide to CAD 808.6 million from CAD 900.2 million in FY20, due to higher expenses and a lower finance lease income.
• The company reported its net income of CAD 269.8 million, as compared to CAD 485.0 million in FY20. The decline was primarily due to the above-mentioned reasons, coupled with a fair value loss amounting to CAD 116.6 million and an inclusion of impairment charges amounting CAD 29.9 million.

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

Stock Recommendation

For FY22, the company expects its Adjusted EBITDA to be in the range of CAD 1.15 billion to CAD 1.25 billion, higher than CAD 1.14 billion in FY21 driven by higher contribution from German offshore wind facilities coupled with higher overall contribution from onshore renewables and the EBSA utility. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Boralex Inc, Emera Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of NPI at the last closing price of CAD 40.19 on April 11, 2022.

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

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.