CA - Polaris Renewable Energy: Firm Multiples Overshadowed By Operational Risks
2024-03-15 11:40:02 ET
Summary
- Polaris Renewable Energy is a Canadian IPP primarily engaged in the development and sale of geothermal energy in Central and South America.
- It offers an annual dividend per share of $0.60, resulting in a dividend yield above 7% at the current price, making it an attractive option for value investors.
- I currently rate the stock as a Hold, as I believe the gain at stake is not enough to offset the operational risks implied by the company's activities.
Polaris Renewable Energy Inc. (RAMPF) (PIF:CA) is a Canadian Independent Power Producer primarily engaged in the development and sale of geothermal energy, but partly also solar and hydropower. The totality of its revenues are generated between Central and South America through PPA contracts , mostly settled with state agencies or para-state utilities. Polaris' management aims to achieve EBITDA of $100m by FY28, through organic growth due to expected investment of $75m and possible acquisitions. Although this threshold seems difficult to reach, I believe that they can approach it very closely, thus leading to very attractive multiples in prospective valuation. PIF could also represent an intriguing opportunity for value investors, thanks to an annual dividend per share of $0.60 (paid since FY18), meaning a DY above 7% at current price, as well as a planned share buy-back program. The implementation of the latter will require additional debt of about $200m, with a Net Debt/EBITDA target between 3x and 4x. Following an analysis of the business and a DCF analysis, I currently rate PIF as Hold. That is because, although the current stock price is below my estimated fair value, I consider the operational risks associated with it to be too significant compared with the potential return offered by the investment....
Polaris Renewable Energy: Firm Multiples Overshadowed By Operational Risks