Boralex Inc

Boralex Inc (TSX: BLX) is an electric utility company which operates in the development, construction, and operation of renewable energy power facilities. The group controls a portfolio of electricity-producing plants that utilize wind, hydroelectric, thermal, and solar fuel sources.

Key Updates:

• Commissioning of first floating solar farm: Recently, the company reported the commissioning of its first floating solar farm in Peyrolles-en-Provence, located in the French department of Bouches-du-Rhône. The above facility is likely to produce more than 22 GWh per year and is expected to cater to more than 6,400 households. The project would operate under the French Energy Regulatory Commission (CRE 4) and has a feed-in premium contract for ~20 years.

• Growing Asset-base: A consistent growth in installed capacity indicates superior demand from its customers, which is a key positive. From December 2015 to date, the company has reported a growth of 15% CAGR to 2,462 MW, within which 99% are under fixed-price energy sales or feed-in premium contracts. The above indicates stable revenue and cash flow generation, which is a key positive.

Source: Company Presentation

• Consistent growth in profitability: Over the years, BLX has successfully increased its EBITDA, which indicates strong operating performance. Notably, the group has reported a 20% CAGR growth in its EBITDA since 2015, which is encouraging. Moreover, considering the growing asset base coupled with improved demand for the renewable segment, we believe the above momentum is likely to continue in the coming years.

Source: Company Presentation

Q3FY21 Financial Highlights:

• BLX announced its third quarter result, wherein the company posted its revenue of CAD 130 million, improved from CAD 108 million in the previous corresponding period (pcp). The increase was driven by improved power production of 1,108 GWh, grew 40% y-o-y. The increase was supported by positive momentum from the acquisition in the Quebec wind segment and the United States solar segment, coupled with the commissioning of wind farms in France and increased production at hydroelectric stations across the United States supported by favorable weather conditions.
• Total costs were recorded at CAD 123 million, increased from CAD 105 million in Q3FY20. The increase was due to higher operating and higher amortization expenses.
• The company reported a net loss of CAD 22 million, as compared to a net loss of CAD 8 million in the previous corresponding period (pcp).

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: A major part of the revenue comes from the wind segment and hence, any adverse weather conditions might impact the company’s operations and might dampen the cash flows as well.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

During the third quarter of FY21, the company added 103 MW of project to the “Early-stage” phase of its pipeline, while Two projects totaling to ~33 MW were advanced to the “Secured” phase of the Growth Path. The above is expected to contribute healthily to the company’s upcoming performance in the, which is mentioned worthy. We have valued the stock using P/CF based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Hydro One Ltd, TransAlta Renewables Inc etc. Considering the above-mentioned facts, we give a ‘Buy’ rating on the stock at the last closing price of CAD 34.97 on December 21, 2021.

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

Technical Analysis Summary

One-Year Technical Price Chart (as on December 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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