Northland Power Inc.

Northland Power Inc (TSX: NPI) is a Canada-based power producer, which focuses on developing, building, owning, and operating clean and green power infrastructure assets in Canada, Europe and other selected global jurisdictions.

Key highlights

• Foray into Spanish renewables market: The corporation recently announced the purchase of an operating portfolio of onshore renewable energy projects in Spain. This high-quality operating portfolio would put the firm among the top ten operators in the rapidly expanding Spanish renewables sector. 

• Guidance on adjusted EBITDA and free cash flow for 2021: The management expects adjusted EBITDA to be in the range of CAD 1.1 billion to CAD 1.2 billion. Adjusted EBITDA is expected to remain consistent relative to 2020 guidance levels and Free Cash Flow to be in the range of CAD 1.30 to CAD 1.50 per share. Free Cash Flow per share is expected to be lower than the revised 2020 guidance of CAD1.60 to CAD1.70 per share. The reason for this decline in 2021 is a higher project development and corporate costs to support growth.

Source: Company

• Robust long-term outlook: The Company is at an inflection point, given the accelerating global trend towards de-carbonization and electrification and its extensive offshore wind development portfolio. It has advanced and secured several offshore projects' rights and would increase its installed gross capacity by at least 4 to 5 GW over the next five years. These projects, once operational, are expected to more than double the Company’s adjusted EBITDA. 

• Increase in cash and cash equivalents: The resilient business and healthy cash flow generation helped the company in maintaining strong cash and cash equivalents position at the end of the year, which grew by more than 62% YoY to CAD 435 million.

Source: Company

• Event update: The company would release its Q1 2021, financial results on May 12, 2021.

Financial overview of FY2020 (In thousands of Canadian dollars)

Source: Company

• The company posted total revenue of CAD 2,060.6 million in FY 2020, against CAD 1,658.9 million in the previous corresponding period. The rise in revenue was primarily due to higher income from electricity and related products, along with additional income from regulated electricity segment.
• A healthy growth was witnessed in the operating income, as it stood at CAD 900.2 million in FY 2020, compared to CAD 813.7 million in pcp. Higher revenues helped the company in posting higher operating income, partially offset by increased operating expenses.
• The company's net income increased slightly to CAD 485 million compared to CAD 451.7 million in the previous corresponding period. Reasons stated above were the prime reasons behind an increased net income. 

Risks associated with investment

The company’s business activities are exposed to a variety of risks and uncertainties such as regulatory changes, rapidly changing market dynamics and volatility in commodity prices, interruptions of production, delays in growth projects, increased credit risk with counterparties, and foreign exchange volatility, etc. 

Valuation Methodology (Illustrative): EV to Sales

All forecasted figures and peers have been taken from Thomson Reuters. 

Stock recommendation

The Company has successfully established a global platform with geographic and technology diversification across four continents and actively pursues new sustainable infrastructure opportunities that encompass a range of clean technologies, including onshore and offshore renewables and electricity grid networks. The Company’s long-term growth strategy is centered on developing its extensive pipeline of offshore wind projects in Europe and Asia, which can increase long-term cash flow growth potential. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing price of CAD 42.60 as on April 29, 2021. We have considered Boralex Inc, Capital Power Corp, Brookfield Renewable Partners LP. as the peer group for the comparison.

1-Year Price Chart (as on April 29, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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