Boralex Inc.

Boralex Inc. (TSX: BLX) develops, builds and operates renewable energy power facilities in Canada, France, the United Kingdom and the United States. The Company operates through three operating segments, namely, Wind, Hydroelectric and Solar.

On August 11, 2020, the Company informed the issuance of 5,288,000 common shares at the price of CAD 33.10 per share for a total consideration of CAD 175 million. The Company would use the funds for repayment of its revolving credit facility.

Q2FY20 Financial Highlights: BLX announced its quarterly results, wherein the Company posted total revenue of CAD 121 million, at par with Q2FY19. Revenues from energy sales decline marginally while Feed-in premium improved as compared to the previous corresponding quarter. Operating income jumped to CAD 24 million, from CAD 18 million in the previous corresponding period (pcp), primarily driven by lower amortization costs and development cost, partially offset by a surge in operating expense. The Company posted a loss before income tax at CAD 8 million, improved from a loss of CAD 19 million in pcp, due to a proportionately lower finance cost amounting to CAD 31 million. Net loss stood at CAD 6 million, as compared to CAD 15 million in pcp. The Company posted 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 to CF Based (Illustrative)

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

Stock Recommendation: The stock of BLX has remained as a resilient performer in the recent past, amidst a major jolt in the Equity market on account of COVID 19 pandemic. The stock appreciated 35% so far this year. Investors should note that the stock closed above the 200-days Simple Moving Average (SMA) of CAD 27.96, indicating a bullish trend. The Company operates in the renewable energy power business, which is considered as ‘essential services’ and is immune to the economic cycle. During the second quarter, the Company has commissioned a wind farm project in Santerre, France of 15 MW, resulting in net installed capacity of 2,055 MW. The higher capacity augers well for higher power generation and hence better cash flows. 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 Company’s portfolio is well-diversified, and BLX is looking for a bid in October 2020 RFP in the US. Furthermore, the company signed definitive agreements for four power projects of 180 MW in New York, which is encouraging. 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 industry (Utilities) average on NTM basis. Hence, we recommend a ‘Hold’ rating on the stock at the Closing price of CAD 33.06 as on August 19, 2020.

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

Brookfield Renewable Partners LP

Brookfield Renewable Partners LP (TSX: BEP.UN) operates in renewable power platforms traded publicly. The Group’s portfolio consists of 5,288 generating facilities located in Asia, South America, Europe and North America with a capacity of around 19,300 MW. The company’s investment objective is to deliver annualized total returns between 12% to 15% for long-term.

Recent Highlights:

• On July 16, 2020, the company confirmed the record date for the special distribution of class A exchangeable subordinate voting shares of Brookfield Renewable Corporation on July 27, 2020. On July 30, 2020, the holders of BEP’s limited partnership units (BEP units) of record as of July 27, 2020 received one Share of BEPC for every four BEP units held, or 0.25 Shares for each BEP unit and each Share will be exchangeable at the option of the holder for one BEP unit at any time.

• Recently, BEP.UN confirmed its merger with TerraForm Power, Inc., wherein in which Brookfield Renewable will acquire all of the outstanding shares of TERP, other than the approximately 62% already owned by Brookfield Renewable and its affiliates. This merger will create one of the largest, integrated pure-play renewable power companies in the world with a 15,000 MW development pipeline, one of the strongest investment-grade balance sheets in the sector and a 20-year track record of creating shareholder value across multiple economic cycles

Q2FY20 Financial Highlights: Brookfield announced its quarterly results, wherein the company posted revenue of USD 651 million, as compared to USD 787 million in the previous corresponding period (pcp). The decline was primarily attributed to below average hydrology conditions in the United States coupled with low system-wide hydrology conditions in Colombia, partially offset by higher average realized revenue per MWh, supported from inflation indexation, re-contracting initiatives and favorable generation mix. BEP.Un posted total power generation of 15,527 GWh during Q2FY20, against 14,252 GWh in Q2FY19. The company posted a decline in the direct operating costs to USD 248 million as compared to USD 252 million in pcp primarily due to cost-saving initiatives and the favorable impact of foreign exchange movements, partially offset by additional costs due to acquired and commissioned facilities. The company posted a decline in interest expense driven by the benefit of recent refinancing activities resulting in a lower average cost of borrowing. Net income declined drastically to USD 11 million, as compared to CAD 109 million in pcp.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group may experience direct or indirect impacts from the pandemic, including delays in development or construction activities in its business and has some risk that its contract counterparties could fail to meet their obligations.

Valuation Methodology: Price to CF Based (Illustrative)

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

Stock Recommendation: The stock stood resilient in the recent past and appreciated ~50% in the last one year. The stock closed above the 200-days simple moving average (SMA) of CAD 51.65, indicating a bullish pattern. The company’s business is related to power generation and is immune to the economic cycle. The company reported stable funds from operation during the quarter at USD 232 million, as compared to USD 230 million in pcp, which is commendable. The company is focusing on maintaining highly diversified, investment grade customer base of more than 600 customers around the world under long-term power purchase agreements, which is likely to help in generating stable cash flow. During the quarter, the company secured 17 new contracts in Latin America amounting 432 gigawatt-hours per year, including one contract in Colombia with a seven-year term. Further, with the recent merger with TerraForm Power, the group intends to form an integrated pure-play renewable power company in the world with a 15,000 MW development pipeline. At the end of the quarter, the company had ample liquidity of USD 3.4 billion, which seems sufficient enough to meet the working capital requirements. Further, the company do not have any material debt maturities over the next five years. Further, the stock is offering a dividend yield of 3.94%, which is lucrative, considering the current interest rate environment. We have valued the stock using the Price to CF based relative valuation approach and arrived at a target price, which suggests a single upside potential (in % terms). For the said purpose, we have considered peers like Innergex Renewable Energy Inc, TransAlta Renewables Inc etc. Hence, considering the aforesaid facts and current price movement, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 58.94 on August 19, 2020.

BEP.UN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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