Boralex Inc (TSX: BLX) is an electric utility company which develops, constructs, and operates renewable energy power facilities across, Canada, the United States, France, and the United Kingdom. Most of Boralex's plants rely on wind power, while a significant number also employ hydroelectric power.

Key highlights

• Rising power production and Adjusted EBITDA: On a Combined basis, power production in Q3 2021 was 1,238 GWh, up 22% or 221 GWh over the same quarter in 2020. The contribution of purchased facilities in the Canadian wind power and U.S. solar power segments accounted for the majority of the increase. As a result of the increased electricity output, the group's adjusted EBITDA increased by 12% to CAD 93 million, or CAD 10 million.

• Adding capacity through new projects and good progress on development projects: Over the past five years, the company’s installed capacity has more than doubled to 2.5 GW. Furthermore, it is developing a portfolio of more than 3 GW of wind and solar projects and almost 200 MW of storage projects. Along these projects the company is also working on many other projects with an aim to increase its total installed capacity to 4,400MW by 2025.

Source: Company Presentation 

• Diversified assets at different locations: The Company remains highly diversified with facilities that are fully contracted (99%) and located in various geographies. A significant portion of the company’s net installed capacity originates from the wind power segment, making the company largest independent producer of onshore wind power in France. We believe this diversification provides an added advantage.

Source: Company Filing 

• Strategic plan and financial objectives: The company is putting in place strategic procedures based on the potential for growth in the markets in which it operates. Along with strong financial discipline, the group is gaining synergy criteria to build value and earn returns by focusing on initiatives and acquisitions that fit specified growth criteria. As a result, the company's goal for 2025 is to achieve EBITDA in the range of CAD 800-850 million and discretionary Cash Flows in the range of CAD 240-260 million.
  

Financial Highlights of Q3 2021

Source: Company Filing

• In Q3 2021, the company posted consolidated revenues of CAD 130 million, up 20.4% against CAD 108 million in Q3 2020. This increase was mainly attributable to a favorable volume from Canadian wind power segment and the U.S. solar power segments.
• On the back of elevated operating cost, the company managed to post an operating income of CAD 7 million compared to CAD 3 million in the previous corresponding period. An amortization cost increased significantly to CAD 74 million against CAD 59 million.

• The company posted a net loss of CAD 22 million in the reported financials, against a loss of CAD 8 million in the previous corresponding period. The net loss extended mainly due to higher finance cost at CAD 36 million.
  

Risks associated with investment

Reduced demand, lower output, and poor weather conditions are all major risk concerns. There's also the possibility that its contract counterparties won't fulfill their commitments. Since the Company operates in several locations, it is also exposed to foreign currency fluctuation risk, also higher debt in the book, portrays a significant risk. 

Valuation Methodology (Illustrative): Price to Cash flow

Analysis by Kalkine Group

Stock recommendation

The renewable energy is likely to show a substantial and sustained increase in the market share over the next decade as most of the developed nations are adopting the renewable services at mass, which is promising and augers well for the company’s long-term growth. The company is also looking for organic growth and is increasing its capacity to the next level by 2025, which is a key positive. Also, on the back of this increased capacity the firm is trying to capture an EBITDA in a range of CAD 800-850 million along healthy cash flows by 2025. Therefore, based on the above rationale and valuation done using the above methodology, we recommend a “Buy” rating at the closing price of CAD 31.29 as on January 10, 2022.  

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Summary Analysis

One-Year Technical Price Chart (as on January 10, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

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