Boralex Inc.

Boralex Inc. (TSX: BLX) develops, builds and operates renewable energy power facilities across Canada, France, the United Kingdom and the United States. The group derives its revenue from three operating segments- namely, Wind, Hydroelectric and Solar.

Key Highlights:

• BLX along with Auchan Retail France announced the signing of a corporate PPA through which Auchan Retail France will locally consume green energy produced by two wind farms owned and operated by Boralex in the Hauts-de-France region for a period of three years, starting from January 1, 2021.
• The company recently confirmed the commercial commissioning of the 15 MW Santerre Wind Farm, located in La Somme, France, which brings Boralex’s capacity in France to 993 MW and its total capacity worldwide to 2,055 MW.

Q2FY20 Financial Highlights: Boralex declared its quarterly results, wherein the group posted a top line of CAD 121 million, which stood at par with the revenue recorded in the previous corresponding period (pcp). Revenues from the Windpower stations stood at par on y-o-y basis while revenue from Hydroelectric power stations showed marginal improvement. Operating income jumped to CAD 24 million from CAD 18 million recorded in Q2FY19, primarily driven by a decline in the amortization costs and development cost, partially offset by higher operating expense. BLX reported a loss before income tax of CAD 8 million, improved significantly from a loss of CAD 19 million in pcp, driven by a proportionately lower finance cost of CAD 31 million. Net loss stood at CAD 6 million, against CAD 15 million in pcp. The company ended the quarter with cash and cash equivalent of CAD 286 million, while total assets stood at CAD 4,618 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group has operations in France and the US and hence is exposed to currency fluctuation risk. Further, any change in regulations and government policies could affect the overall business of the Company. Risks related to environment and climate change could hamper the operations of the group.

Valuation Methodology: Price/CF Based (Illustrative)

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

Stock Recommendation: The stock gained handsomely in the recent past and appreciated ~57% in the last one year. The group provides renewable energy power services across different countries, and the business is immune to the economic cycle. With the addition of 15 MW Santerre Wind Farm, located in La Somme, France, the company is expected to drive higher revenues in the coming days. Total MW of Projects under construction or ready to build phase for the 2020-2022 period is stable as the inclusion of the secured projects, namely Blanches Fosses, Evits et Josaphat repowering and Remise de Reclainville repowering under Projects under construction or ready to build offset the reduction resulting from the Santerre project commissioning. Six French wind farms are either under construction or have completed all preliminary stages and obtained preconstruction approvals. They are all subject to long-term feed-in premium contracts. These wind farms will contribute to the Corporation’s results when commissioned in 2020, 2021 and 2022. Overall, their additional contribution to EBITDA is estimated at CAD 23 million per year, based on total expected production and adjusted using the Canadian dollar exchange rate at the end of the quarter.  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 countries are adopting the renewable services in the course of time, which is a key positive and augurs well for the company’s long-term growth. We have valued the stock using Price to CF-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Northland Power Inc, Capital Power Corp, etc. Considering the aforesaid facts, current price movement, we recommend a 'Hold' rating on the stock at the closing market price of CAD 34.89 on September 18, 2020.

BLX Daily Technical Chart (Source: Refinitiv, Thomson Reuters

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