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.

• Robust margins: In FY21, the company reported higher EBITDA margin and operating margin of 67.2% and 36.1%, respectively, higher than the industry median of 56.3% and 23.4%, respectively. This indicates better cost management, which is a key positive. Moreover, the company reported its net margin of 12.9% in FY21, as compared to the industry median of 1.8%.

• 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.
  

• Increase 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 indicates improved liquidity position.

• Update on ‘At-the-market equity program’: On March 01, 2022, the company established an at-the-market equity program that allows the Company to issue up to CAD 500,000,000 of common shares from treasury to the investors. The transaction would be done through the Toronto Stock Exchange.

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.
• 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, partially offset by lower finance 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): Price to CF based

Analysis by Kalkine Group 

Stock Recommendation

For FY22, 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 of NPI also carries a dividend yield of ~2.964% on an annualized basis, which looks decent considering the ongoing interest rate scenario. 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). 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 closing price of CAD 40.81 on March 04, 2022.

One-Year Technical Price Chart (as on March 04, 2022). Analysis by Kalkine Group

Disclaimer

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