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 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.
  

• Bullish Outlook: The management highlighted that its construction activities at the two New York onshore wind projects is progressing as planned and expected to be completed in 2022. The first turbines are expected to be delivered to Bluestone Wind in June and Ball Hill Wind in August 2022. These projects are likely to boost the company’s income and cash flows in the coming days. Moreover, in order to achieve its long-term growth objectives, the company established regional development offices to secure certain growth opportunities across the globe. The activity from these offices is likely to generate a robust portfolio which would support the upcoming operations of the company.

• Increase in Dividend Distribution: Despite the ongoing economic turbulence followed by tight liquidity scenario, the company has distributed higher dividends of CAD 47.3 million Q1FY22, as compared to CAD 39.9 million in pcp, supported by a stable cash flow generation. This is impressive as most of the company is lowering their dividend distribution to retain liquidity.

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. 

 Q1FY22 Financial Highlights:

Q1 FY22 Income Statement Highlights (Source: Company Report)

• NPI announces its Q1FY22 results, wherein the company reported total sales of CAD 695.0 million, grew from CAD 612.7 million in pcp. The period was marked by higher income from the regulated electricity segment.
• Gross profit stood at CAD 635.7 million, soared from CAD 548.7 million, supported by higher income and lower cost of sales.
• Total expenses increased to CAD 265.1 million from CAD 246.3 million in pcp. Operating income grew to CAD 373.7 million in Q1 FY22 from CAD 306.3 million in pcp partially offset by higher operating costs.
• The company reported its net income of CAD 287.5 million, surged from CAD 151.3 million in pcp, partially offset by a higher income tax expense.

 Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

Stock Recommendation

The company’s operation is stable in nature as it comes under the essential services. Moreover, the company has a strong presence across eight countries and is the first independent power producer company to expand globally into offshore wind. With the growing traction within the renewable segment, we believe the outlook of the group remains positive in the coming days.

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 38.83 on May 27, 2022.

One-Year Technical Price Chart (as on May 27, 2022). Analysis by Kalkine Group

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

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