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:

• Encouraging Product pipeline: 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 in order 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.

Source: Company Presentation

• Focusing 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.
  

• Industry Beating Margins: The company reported its gross margin and EBITDA margin of 91.5% and 74.5%, respectively, as compared to the industry median of 68.9% and 58.6%, respectively. This indicates that the company has an impressive cost centre long with higher operational efficiencies. Notably, the company’s net margin stood at 41.4% in Q1FY22, as compared to the industry median of 0.6%.

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:

Q1FY22 Income Statement Highlights (Source: Company Report)

• In Q1FY22, wherein the company reported total sales of CAD 695.0 million, surged 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.
• Operating income stood at CAD 373.7 million, as compared to CAD 306.3 million in pcp, due to higher gross profit, partially offset an increase in total expenses.
• The company reported its net income of CAD 287.5 million, surged from CAD 151.3 million in pcp, due to higher operating income as mentioned above partially offset by a higher income tax expense.

  Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

Stock Recommendation

The company reported a higher cash balance of CAD 1,203.6 million in Q1FY22, as compared to CAD 673.6 million in Q4FY21. This indicates that the company has higher liquidity, which is a key positive. Lastly, the stock of NPI carries an annualized dividend yield of ~3.084%, which looks impressive considering the ongoing interest rate scenario. 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 TransAlta Corp, Emera Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of NPI at the last closing price of CAD 38.91 on June 13, 2022.

One-Year Technical Price Chart (as on June 13, 2022). Analysis by Kalkine Group

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

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