Polaris Infrastructure Inc. (TSX: PIF), is a Canada-based company, which is engaged in the acquisition, development, and operation of renewable energy projects. It operates energy projects in Central and South America, which includes both Geothermal and Hydroelectric energy projects.

Key highlights

• Cheering macros to support future performances: Apart from North America, the corporation has a presence in Latin America, including Nicaragua and Peru, where governments have declared mandates and economic policies to support the expansion of local renewable energy sources. Latin America is one of the world's most active renewable energy markets, with tremendous growth potential.

• Eminent energy production: Regardless of a sluggish production outlook in the recent past, the company reported total power production of 149,320 MWh in Q3 2021, climbed from 142,194 MWh in the previous corresponding period. We expect the momentum to continue in the coming days, supported by an elevated demand scenario.

Source: Company Fillings

• Industry beating margins: The company's strong determination enabled them to outperform the industry median margins on several fronts in Q3 2021, which demonstrates the company's competitive edge within the industry. This can be seen in the graph below.

Source: REFINITIV, Analysis by Kalkine Group

• Reported higher cash balance and minimizing net debts: In Q3 2021, the company reported higher cash balance at USD 99.8 million compared to USD 60.0 million on Dec 31, 2020. Furthermore, it reduced its net long-term debt to USD 152.5 million compared from USD 168.2 million, respectively in the same period. The group is curtailing its debt on a sequential basis, which is a key positive

Source: REFINITIV, Analysis by Kalkine Group

• An Income Play: The group continues with a track record of dividend distribution, backed by robust cash flows. Recently, the company paid a quarterly dividend of USD 0.15 per unit and, at the last traded price of CAD 15.39, the stock offered a lucrative dividend yield of 4.855%, translating into an essential factor for regular income-seeking investors with a long-term horizon.
  

Risks associated with investment 

Due to the inherent nature of the operations, the group might witness setbacks from the global economic trends, risks related to local social, political, environmental, and economic conditions, as well as currency and inflation-related risks within the markets within which it operates. 

Financial overview of Q3 2021 (In 000 of USD)

Source: Company Filing

• PIF announced its quarterly results, wherein the group reported its revenue of USD 14.8 million, lower than USD 17.0 million in the previous corresponding period (pcp). The slide was primarily due to the amended PPA price at San Jacinto.
• Operating income stood at USD 4.2 million, slide from USD 6.6 million in pcp due to lower revenue and an increase in G&A expenses.
• Earnings before income tax stood higher at USD 3.1 million compared to USD 1.9 million in pcp. An increased income was mainly due to higher other gains.
• The group reported a net profit of USD 2.1 million, as compared to USD 1.3 million in pcp.
  

Valuation Methodology (Illustrative): EV to EBITDA

Analysis By Kaline Group 

Stock recommendation 

The company posted solid third-quarter results, demonstrating its commitment to its long-term plan by creating good cash flow and focusing on diversification. Because the company works in the utilities industry, where demand for services is unaffected by economic cycles, income consistency is a crucial benefit. Furthermore, a binary unit contract has been negotiated, with a commercial operating date of the end of 2022, is a significant plus. It also has a robust balance sheet, with net long-term loans that have been greatly reduced. Moreover, the company is offering a respectable dividend yield of more than 4.5%, which is a key positive. Hence, considering the aforesaid facts, we give a ‘Speculative Buy’ rating on the stock at the current market price  of CAD 15.26 at 9:40 am Toronto time  on January 13, 2022. 

*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 January 13, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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