Strong Fundamentals, Sustainable Cashflow to Drive Business: Northland Power Inc (TSX: NPI) is an independent power producer which develops, builds, own and operate sustainable infrastructure assets used for electricity from clean-burning natural gas and renewable resources such as wind, solar and biomass.

NPI announced that COVID outbreak had no impact on its business as of yet. Further, the company reaffirmed its earlier guidance on the EBITDA and free cash flow front. The company paid a monthly dividend of CAD 0.10 per share, stood at par with previous monthly distribution. The company will report its Q1FY20 financial results on May 14, 2020.

FY19 Financial Highlights: For the period ended December 31, 2020, NPI came up with a stellar performance, wherein the company reported total sales of CAD 1,658.98 million, as compared to CAD 1,555.58 million. The increase was driven by improved performance from all the segments. Operating income stood higher at CAD 813.7 million, as compared to CAD 732.85 million in FY18.The growth was aided by higher income coupled with decreased operating costs, and substantially higher investment income, which was partially offset by higher depreciation and general & administrative expenses. Net income surged to CAD 451.75 million from CAD 405.508 million in FY19.

FY19 Income Statement Highlights (Source: Company Reports)

Valuation Methodology (Illustrative): Price/Cash Flow based approach

Stock Recommendation: The stock of NPI is has generated a decent return of ~22% during the last one year with a market capitalization of ~CAD 5.63 billion. Notable, the stock is trading above its 200-day simple moving average (SMA) of CAD 27.14, which reaffirms investors’ confidence on the defensive nature of the business. The stock offers a lucrative dividend yield of 4.115%, which makes it a perfect stock for income seeking investors. The company’s business comes under the purview of ‘essential services’ and generates predictable cash flows. The company’s revenues are regulated and stable, which makes it immune to the economic cycles. NPI has enough liquidity and strong balance sheet to navigate the current crisis unharmed. Besides, its stable revenues and free cash flows profile supports growth. We remain upbeat on NPI stock as the company has the potential to generate significant cash flows to support its future expansions. We have used peers like Boralex Inc (TSX: BLX), TransAlta Renewables Inc (TSX: RNW), Capital Power Corp (TSX: CPX) and arrived at a target price offering lower double-digit upside from the current level, by using P/CF-based relative valuation metrics. Hence, we recommend a ‘Buy’ rating on the stock at Closing the market price of CAD 29.16 as on April 22, 2020.

NPI Daily Price Chart (Source: Thomson Reuters)

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