Northland Power Inc.

Northland Power Inc. (TSX: NPI) is a Canada-based power producer. The company focuses on developing, building, owning and operating clean and green power infrastructure assets in Canada, Europe and other selected global jurisdictions. Its segments include Offshore Wind, Thermal, On-shore Renewable and Other.

Key highlights

• Acquired 49% interest in Baltic power offshore wind project: The company continues to expand its European offshore wind footprint with a strategic partnership in Poland by acquiring 49% interest in Baltic power offshore wind project with a total capacity of up to 1,200 megawatts (MW). The company would invest approximately CAD 100 million for the development of this project in 2021. Furthermore, through this, the company would capitalize on the growth in renewable energy demand in a growing Central European market.

• The management's bullish stance: Management expects adjusted EBITDA in the range of CAD 1.1 to CAD 1.2 billion for 2020, which speaks to strong operations. The company delivered strong results, with cash flow amounting to CAD 289 million or CAD1.46 per share for the first nine months of the year. The management expects 2020 free cash flow per share to be in the range of CAD1.60 to CAD1.70, while for 2021 the Free Cash Flow would be in the range of CAD1.30 to CAD1.50 per share. The reason for this decline in 2021 is higher project development and corporate costs to support growth.

Source: Company

• A pipeline of growth opportunities: The company’s long-term growth strategy is centred on the development of its extensive pipeline of offshore wind projects in Europe and Asia, which can increase long-term cash flow growth potential of the Company. The group is also executing a business plan to provide a platform for significant Adjusted EBITDA growth.

Source: Company

• Reliable dividend payment: 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 paid a monthly dividend CAD 0.10 per share on January 15, 2021.

Source: Company 

• Event update: The company will be releasing its 2020 fourth quarter financial results after market close on February 22, 2021. 

Financial overview of Q3 2020

Source: Company 

• The company posted total revenue of CAD 470.8 million in Q3 2020, against CAD 378.4 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 muted growth was witnessed in the operating income, as it stood at CAD 179.4 million in Q3 2020, compared to CAD 176.9 million in Q3 2019. Higher operating cost coupled with higher depreciation dragged the operating income.
• In Q3 2020, the company's net income decreased slightly to CAD 108.9 million compared to CAD 110.6 million in Q3 2019. 

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, supply chain disruptions, 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 centred on the development of its extensive pipeline of offshore wind projects in Europe and Asia, which can increase long-term cash flow growth potential. Furthermore, the management expects adjusted EBITDA to be in the range of CAD 1.1 to CAD 1.2 billion for FY 2020, which speaks to strong operational results. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing price of CAD 48.56 on February 18, 2021. We have considered TransAlta Corp, Algonquin Power & Utilities Corp, Capital Power Corp, etc. as the peer group for comparison.

Source: Refinitiv (Thomson Reuters)

Innergex Renewable Energy Inc

Innergex Renewable Energy Inc (TSX: INE) is an independent Canadian renewable power producer, which develops, acquires, owns and operates hydroelectric, wind, and solar facilities in Canada, the United States, France, and Chile.

Key Updates:

• Positive Technical Indicators: The stock of INE closed above the long-term support levels of 150-days and 200-days simple moving average (SMA), indicating a bullish price trend. In the recent past, the stock gained momentum and appreciated ~21% and ~46% in the last six months and nine months, respectively.

                 (Source: Refinitiv, Thomson Reuters)

• Improved performance on sequential quarter basis: The operations of the group is resilient in nature, as it caters to the utility segment. In the latest quarter, the group’s revenue and gross profit stood higher at CAD 162.7 million and CAD 125.6 million in Q3FY20, compared to CAD 150.5 million and CAD 120.2 million, respectively in Q2FY20. Moreover, the group’s recorded a profit of   CAD 11.7 million against a loss of CAD 2.5 million in the previous quarter.
• Better than industry-margins: The group reported decent margins during Q3FY20, which stood higher than the industry median, driven by improved operational efficiency. EBITDA margin and operating margin stood at 66.7% and 29.8%, respectively, as compared to the industry median of 51.5% and 24.3%, respectively.

• Event Update: The group would disclose is fourth quarter FY20 result on February 25, 2021.

Q3FY20 Financial Highlights:

• INE declared its quarterly results, wherein the group posted revenues of CAD 162.651 million, as compared to CAD 142.814 million. The increase in the top line was driven by a higher electricity production of 2,021,559 MWh, compared to 1,665,362 MWh in the previous corresponding period (pcp), which was supported by new acquisition and increase in production capacity.
• Adjusted EBITDA was recorded at CAD 108.524 million, marginally higher than CAD 107.351 million in Q3FY19, while Adjusted EBITDA margin stood lower at 66.7%, against 75.2% in pcp. The company reported higher input costs and posted higher operating expenses (CAD 37.040 million versus CAD 24.403 million in pcp) and increase in general and administrative expenses (CAD 12.388 million versus CAD 7.731 million in pcp).
• Net earnings came lower at CAD 7.492 million, as compared to CAD 9.703 million in pcp. The decrease was due to lower earnings from joint ventures and associates (CAD 11.382 million versus CAD 16.225 million in pcp).
• The group reported cash and cash equivalents of CAD 156.360 million, while total assets were recorded at CAD 7,148.134 million.

Q3FY20 Income Statement Highlights (Source: Company Reports) 

Risks: The company’s operation might be hindered due to lower electricity rates, lower demand, adverse weather conditions, etc.

Valuation Methodology (Illustrative): EV to EBITDA based

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

Stock Recommendation:

The group reported improved operating performance and posted cash flows from operating activities from continuing operations at CAD 157.416 million in 9MFY20, improved from CAD 155.207 million, a year ago. Moreover, dividend distribution stood higher at CAD 85.673 million, as compared to CAD 71.578 million, a year ago. Moreover, the company produced higher production of 5,886,949 MWh in 9MFY20, significantly higher than 4,715,820 MWh, a year ago. We have valued the stock using the EV to EBITDA based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers Boralex Inc, Algonquin Power & Utilities Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 25.89 on February 18, 2021.

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

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.