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:

• Elevated Production to meet higher demand: The group has consistently enhanced is capacity in recent years in order to cater for the growing demand, which is a key positive. Net installed capacity is targeted at 2,800 GWh, from the current capacity of 2,455 GWh, which is expected to support the company’s upcoming business prospects. Notably, the group reported a total power production of 5,834 GWh in FY20, reflecting an increase of 5.23% on y-o-y basis.     

Installed Capacity Snapshot (Source: Company Report)

• Healthy Net-Debt to Market Capitalization: The company reported a healthy net-debt to market capitalization ratio of ~41% in FY20, improved from ~56% in FY19. The above ratio measures the company’s indebtedness relative to its market value. Meanwhile, the above ratio stood well below the company’s target of 65%.

Net Debt Ratio (Source: Company Report) 

FY20 Financial Highlights:

• BLX announced its full-year result, wherein the company posted higher revenue of CAD 619 million, as compared to CAD 564 million in FY19. The increase was driven by improved power production of 4,727 GWh, versus 4,371 GWh in FY19, supported by higher than the expected production in wind power generation.
• The company turned into profitability in FY20, wherein net earnings was recorded at CAD 61 million, as compared to a net loss of CAD 43 million in FY19.
• Total debt was recorded at CAD 3,516 million, slightly higher than CAD 3,067 million in FY19.
• Cash and cash equivalents were recorded at CAD 277 million, higher than CAD 168 million in FY19. As of December 31, 2020, the group reported total assets of CAD 5,314 million.

Key Financial Highlights (Source: Company Report)

Risks: The company derives almost ~82% of its revenue from the wind segment, and due to any adverse weather condition, the group’s operations would be impacted, which might take a toll on the company’s overall performance.                                             

Valuation Methodology (Illustrative): Price to CF based

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The group caters to the utility segment, and the operations are immune to the economic cycles, which augurs well for stable revenue and cash flows. Due to the lower carbon emission norms, most of the nations are leaning towards renewable energy, and hence, the long-term outlook remains bright for the company. Moreover, Boralex has a robust business model, and it derives its income from long-term contracts with clients that have strong financial positions, ensures a balanced risk profile. During the fourth quarter of FY20, the company commissioned three wind projects, which adds approximately 45 MW of production capacity. 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 IBI Group Inc, Aecon Group Inc etc. Considering the above-mentioned facts, we give a ‘Hold’ rating on the stock at the current closing price of CAD 40.46 on March 4, 2021.

BLX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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