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 Highlights

• Started FY 2022 in a grand fashion: The company began FY 2022 on a high note, with sales for Q1 2022 increasing by 13.4% to CAD 695.1 million, compared to CAD 612.8 million in Q1 2021. Furthermore, operating income and net income also witnessed the elevation, where they grew by 22.0% and 90.0% respectively, compared pcp. All these impressive figures were supported by improved performance and higher prices in the offshore wind segment coupled with stable performance across its operating portfolio.

Source: Company Filing, Analysis by Kalkine Group

• Prioritizing on clean energy: Due to the recent government policy of de-carbonization, the demand for renewable energy 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. Furthermore, on April 7, 2022, the group sold its Iroquois Falls and Kingston efficient natural gas facilities in Ontario, resulting in a 24% reduction in gas-fired generation capacity. The sale further supports efforts to reduce its carbon intensity and repatriate capital to fund the growth of its renewable development projects around the globe.

• Robust increase in free cash flows: In the reported period of Q1 2022, the company’s cash from operation stood steadily at CAD 408.7 million, compared to CAD 408.5 million in Q1 2021. However, its free cash flows jumped by 30% to CAD 174.4 million, against CAD 134.4 million in pcp. The rise in free cash flows is primarily due to CAD 36 million contribution from the Spanish portfolio of onshore wind and solar facilities along net proceeds of the EBSA refinancing, worth CAD 13 million, partially offset by higher income tax.

Source: Company Filing, Analysis by Kalkine Group 

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 adverse weather conditions, to name a few.

Financial Overview of Q1 FY 2022 (In thousands of CAD)

Source: Company Filing 

• NPI announces its Q1 2022 results, wherein it reported total sales of CAD 695.0 million, higher than CAD 612.7 million in pcp.
• Gross profit stood higher at CAD 635.7 million in Q1 2022, as compared to CAD 548.7 million in pcp, supported by higher income and lower cost of sales.
• Total expenses increased to CAD 265.1 million from CAD 246.3 million in Q1 2021. However operating income lifted to CAD 373.7 million from CAD 306.3 million in pcp, primarily due to higher gross profits.
• In Q1 2022, the company reported its net income of CAD 287.5 million, compared to CAD 151.3 million in pcp. An increase was primarily due to the above-mentioned reasons, coupled with a fair value gain on derivatives amounting to CAD 128.2 million, partially offset by higher income tax expense.

Valuation Methodology (Illustrative): Price to Cash Flow based

Analysis by Kalkine Group 

Stock recommendation

The corporation generated solid first-quarter results, fueled by increased performance and higher pricing in the offshore wind sector, as well as consistent performance throughout the rest of its operational portfolio, resulting in a great start to the year. Furthermore, it is making headway on its strategic targets, with construction activities at the onshore wind projects in New York and the Helios solar project in Colombia progressing as planned.

For FY2022, the company expects its Adjusted EBITDA in between CAD 1.15 billion to CAD 1.25 billion, while its Free Cash Flow is expected within the range of CAD 1.20 to CAD 1.40 per share. The stock is also carrying a dividend yield of 3.182% on an annualized basis, which looks decent considering the ongoing interest rate scenario.

Therefore, based on the above rationales and valuation, we recommend a “Hold” rating at the last closing price of CAD 37.71 as on May 12, 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 on May 12, 2022). Source: REFINITIV, Analysis by Kalkine Group

Note: The reference data in this report has been partly sourced from REFINITIV

Disclaimer

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