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 Highlights:

• Long-term contracts indicate revenue stability: The company’s contracts are fixed-price energy sales contracts having a weighted average remaining contractual term of 13 years. The above acts as safeguard against ongoing volatility within the electricity prices. The company expects to continue entering into long-term contracts with electricity-consuming companies or electricity suppliers for its projects under development and capacity upgrade projects.
• Growing Asset-base: A consistent growth in installed capacity indicates superior demand from its customers, which is a key positive. From December 2015 till date, the company has reported a growth of 16% CAGR in the installed capacity to 2,469 MW, within which 99% are under long-term contracts
• Higher Dividend Payment: The company reported a higher dividend of CAD 34 million in H1FY21, as compared to CAD 32 million in pcp, supported by stable cash flows. The consistent dividend payment is a testimony of the group’s cash flow generation ability.

Q2FY21 Financial Highlights:

• BLX announced its quarterly result, wherein the company posted revenue of CAD 151 million, higher than CAD 124 million in the previous corresponding period (pcp). The increase was driven by improved power production of 1,323 GWh, v/s 937 GWh in Q2FY20, supported by strong momentum from the wind power stations.
• Total costs were recorded at CAD 126 million, increased from CAD 100 million in Q2FY20. The increase was due to higher operating and higher amortization expenses.
• The company reported a net loss of CAD 8 million, as compared to a net loss of CAD 6 million in the previous corresponding period (pcp).

Source: Company Report

Risks: A major part of the revenue comes from the wind segment and hence, any adverse weather conditions might impact the company’s operations and might dampen the cash flows as well.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation: The company derives its major income from renewable energy segment, which is witnessing strong traction from the developed nations, as the major development nations are leaning towards renewable sources in order to preserve nature. Hence, the implementation of sustainable recovery plans and more ambitious greenhouse gas reduction across countries is expected to accelerate the demand for renewable energy and the need for interconnections between networks, mainly in Canada and the United States. 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 Brookfield Renewable Partners LP, TransAlta Renewables Inc etc. Considering the above-mentioned facts, we give a ‘Hold’ rating on the stock at the closing price of CAD 39.29 on September 9, 2021.

One-Year Technical Price Chart (as on September 9, 2021). Source: Kalkine, Analysis by Kalkine Group

Polaris Infrastructure Inc.

Polaris Infrastructure Inc. (TSX: PIF) is engaged in the acquisition, exploration, development and operation of geothermal and hydroelectric energy projects. 

• Encouraging macros to support future performances: Apart from its presence across the North America, the company has its footprints across Latin America, such as Nicaragua and Peru, which are rapidly growing energy needs nations as the governments stated mandates and economic policies aimed to support the growth of domestic renewable energy sources. Latin America continues to be one of the dynamic renewable energy markets, which offers tremendous growth potential.
• Increase in dividend distribution: Despite the ongoing economic sluggishness, the company reported consistent dividend distribution backed by stable cash flows, which is a key positive. In H1FY21, the group paid a total dividend of USD 5.306 million, higher than USD 4.756 million in pcp. Notably, the stock carries a dividend yield of ~4.2%, which is encouraging considering the current interest rate scenario.
• Growing hydroelectric energy production: Despite a sluggish production outlook in the recent past, the company reported total power production of 99,957 MWh in H1FY21, climbed from 82,927 MWh a year ago. We expect the momentum to continue in the coming days, supported by an elevated demand scenario.

Q2FY21 Financial Highlights:

• PIF announced its quarterly results, wherein the group reported its revenue of USD 14.161 million, lower than USD 18.923 million in the previous corresponding period (pcp). The slide was primarily due to a lower demand scenario which caused a decline in production of 150,676 MWh v/s 165,541 MWh in pcp.
• Operating income stood at USD 3.443 million, slide from USD 8.209 million in pcp due to lower revenue and an increase in direct cost from the Nicaragua facility.
• Adjusted EBITDA was recorded at USD 9.978 million, lower than USD 15.121 million in pcp.
• The group reported a net profit of USD 0.159 million, as compared to a net loss of USD 1.025 million in pcp.

Source: Company Reports

Risks: Due to the inherent nature of the operations, the group might witness setbacks from the global economic trends, risks related to local social, political, environmental, and economic conditions, as well as currency and inflation-related risks within the markets within which it operates.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation: The company operates in utility segment, and the demand for the services is immune to the economic cycles and hence provides income stability. Moreover, the company reported a higher cash from operations of USD 24.152 million in H1FY21 compared USD 18.416 million in pcp.  We have valued the stock using the P/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 Capital Power Corp, Algonquin Power & Utilities Corp and Boralex Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 17.80 on September 9, 2021.

One-Year Technical Price Chart (as on September 9, 2021). Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.