2023-11-17 12:29:02 ET
Summary
- Northland Power is a major player in the power generation industry with over 3200 MW of capacity.
- The company is focused on key projects in offshore wind and battery storage, which are expected to drive significant value creation.
- Northland Power's expansion into diverse geographic regions and its competitive edge in the renewable sector enhance its market reach.
Northland Power Inc. ( NPI:CA ) ( NPIFF ) is a significant player in the power generation industry, owning or holding economic interests in facilities with over 3200 MW of gross capacity.
The company operates gas-fired plants in Ontario and Saskatchewan, wind and solar facilities in Canada and Spain, and offshore wind facilities in the Netherlands and Germany.
Additionally, Northland Power is expanding in Latin America with a regulated electric distribution utility in Colombia and a 130 MW solar facility in Mexico. The company's development pipeline includes 2.9 GW of offshore wind and battery storage projects globally, slated for completion between 2025 and 2027??.
Key Driver: Strategic Focus on Key Projects
Northland Power is concentrated on three major construction projects: Hai Long offshore wind in Taiwan, Baltic Power offshore wind in Poland, and Oneida battery storage in Ontario. The company's dedication to delivering these projects on time and within budget, despite industry challenges like inflation and supply chain issues, underscores its operational efficiency and strategic focus??.
Once all three projects are fully operational, anticipated by 2027, they are expected to collectively generate an aggregate Adjusted EBITDA and Free Cash Flow of $570 to $615 million and $185 to $210 million, respectively, resulting in significant value creation and accretion for Northland's shareholders. That represents growth of ~48% over Fiscal 2023 EBITDA adjusted estimates.
In total, they have a significant development pipeline of 2412 MW in offshore renewables and a battery storage project under construction, complemented by 8526 MW of other identified growth projects. The most advanced project in the company's pipeline is the 220MW Jurassic solar project in Alberta (expected to come online in 2025).
While the company has experienced, some negative growth over the past couple of years, this is about to change.
Diverse Geographic Presence : Northland Power's expansion into diverse geographic regions, including Asia, Latin America, and the U.S., enhances its market reach and mitigates regional risks. This expansion, coupled with a decline in offshore wind costs and heightened competition in the renewable sector, underscores the company's competitive edge in a dynamically evolving energy market??.
Assessing Debt Risk
Northland Power's strategy involves substantial investment in high-value projects, funded through a mix of equity and debt. For instance, the New York wind projects, which began generating revenue in 2023 under a 20-year Power Purchase Agreement ((PPA)), were financed through tax equity, non-recourse debt, and equity, totaling approximately US $600 million.
It takes money to invest in these big projects, and it can lead to insurmountable debt loads. The good news for NPI is that their debt load has remained relatively consistent over the years, so to have their interest payments. This is backed by a strong interest coverage ratio 3.39x.
While the company maintains a manageable debt load, the need for careful management of this leverage is critical, especially in the context of potential economic slowdowns, rising rates, and market volatility.
Valuation
Northland Power Inc.'s stock is currently trading 20.54% below its historical valuation. This indicates that the stock's current price is lower relative to its earnings and sales than it has historically traded. The valuation from historical multiples suggests a value of $28.21, compared to the price of $22.42 as of writing.
When compared against peers of similar size, NPI's PE ratio of 14.37 is considerably lower than Boralex's ( BLX:CA )'s high PE Ratio of 42.56, This suggests that Northland Power offers better value for earnings compared to Boralex. In fact, if we look across most metrics, Northland is better valued:
PS Ratio :
- NPI.TO: 2.501
- BLX.TO: 3.046
- PIF.TO: 2.726
- INE.TO: 2.114
Price to Book Value :
- NPI.TO: 1.323
- BLX.TO: 1.809
- INE.TO: 1.753
EV to EBITDA :
- NPI.TO: 8.223
- BLX.TO: 11.20
- INE.TO: 13.33
Conclusion: Summarizing the Investment Case
Northland Power Inc. presents a compelling investment opportunity, characterized by its strategic focus on key renewable projects, robust financial flexibility, and strong commitment to ESG principles. The company's expansive development pipeline and diverse geographic presence position it well to capitalize on the global shift toward renewable energy.
However, investors should be mindful of the risks associated with the company's debt load and the challenges in the renewable energy sector, such as inflationary cost pressures and competitive market dynamics. Overall, the bull case for owning Northland Power is underpinned by its potential for sustainable growth and value creation in the evolving energy landscape?.
For further details see:
Northland Power: Unlocking Key Growth Driver