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 

• Acquired Spanish operating portfolio of onshore renewable projects: The company has completed the previously announced acquisition of a Spanish operating portfolio of onshore renewable projects (the "Spanish Portfolio") totalling 551 MW of net capacity. This deal instantly elevates Northland to the top 10 renewable power operators in Spain, providing a solid foundation for future expansion in a promising market.

Source: Company Presentation 

• Significant operating and development portfolio: 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 projects which would increase its installed gross capacity by at least 2,840 MW over the next few years. These projects, once operational, are expected to enhance the Company’s adjusted EBITDA and free cash flows.

Source: Company Presentation 

• Financial guidance for FY2021: Themanagement expects adjusted EBITDA to be in the range of CAD1.1 billion to CAD1.2 billion. Free Cash Flow to be in the range of CAD1.30 to CAD1.50 per share. While adjusted Free Cash Flow per share is expected to be in a range of CAD1.60 to CAD1.70 per share.
  

• Reliable dividend distribution: The company has paid a constant dividend to its shareholders since 1997, which is a key positive and indicates operational resiliency and stable cash flows. Recently the group declared a monthly dividend of CAD 0.10 per share (CAD1.20 on an annual basis). Furthermore, the stock is carrying a decent dividend yield of ~ 3.255% at the last traded price of CAD 36.87 on December 15, 2021.

Financial overview of Q3 2021 (In 000 of Canadian dollars)

Source: Company Filing 

• The company posted total revenue of CAD 432.0 million in Q3 2021, against CAD 470.8 million in the previous corresponding period. The fall in revenue was primarily due to lower offshore wind resource, lower production at Nordsee One due to lower turbine availability, and the effect of unfavorable foreign exchange rate fluctuations.
• Gross profit decreased 8% to CAD 383.4 million against CAD 418.4 million in pcp, mainly due to above discussed rationale.
• The operating income in Q3 2021, stood at CAD 89.0 million compared to CAD 179.4 million in pcp. lower revenues and increased operating expenses were the main reason behind this fall.
• The company's posted net loss of CAD 4.6 million against a profit of CAD 108.9 million in pcp.
  

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 Based

Stock recommendation 

Across the three offshore wind farms, the resources experienced in the first nine months of the year are trending substantially below the historical average. Despite the year-to-date weakness in offshore wind resources, management is on track to meet the low end of its 2021 financial guidance, thanks to recent acquisitions that have helped to diversify Northland's operating portfolio, as well as the continued strong financial performance of Northland's Canadian portfolio. Management believes the Company continues to have sufficient liquidity available to execute on its growth objectives, even its long-term growth strategy is centered on developing its extensive pipeline of 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 “Buy” rating at the closing price of CAD 36.87 as on December 15, 2021.

*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 Price Chart (as on December 15, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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