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Buy Northland Power while it’s still cheap, this portfolio manager says

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northland power Northland Power (Northland Power Stock Quote, Chart, News TSX:NPI) has had a good run so far in 2019 but there should be more upside to come, according to John Kim, portfolio manager at Aventine Asset Management, who says that the stock is cheap compared to its energy sector peers.

Toronto-headquartered Northland Power owns and operates renewable energy and natural gas assets worldwide, with the latest addition to the stable being Colombian regulated utility Empresa de Energía de Boyacá, a deal which was announced earlier this month and one which would represent NPI’s second Latin American investment after the La Lucha solar project currently under construction in the State of Durango, Mexico.

“The acquisition builds on our presence in Latin America and gives us an entry point into Colombia, a target market with a stable economy, growing middle class, strong rule of law and ease and transparency of doing business” said Northland president and CEO Mike Crawley in a press release. “We are thrilled to be acquiring this high-quality regulated Colombian utility. EBSA operates in a stable regulatory framework offering an inflation-protected perpetual cash flow profile and serves as a platform for future
growth.”

But the market seems to have reacted negatively to the proposed deal, at least initially, as it dropped the stock four per cent on the day of the press release on August 9. Northland’s share price has since gained back that ground and currently sits up 17 per cent year-to-date. On a longer chart, NPI is up just four per cent over the past three years but has increased in value by 140 per cent over the past decade.

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Kim says the stock could start to jump with the completion of Northland’s 100-per-cent owned Deutsche Bucht offshore wind farm gets up and running. Northland reported in early August that Deutsche Bucht, which has a capacity of 269 MW, had 25 of its 33 wind turbines installed, with project completion expected by the end of this year.

“One of the reasons that it trades at a discount is that there has been no new development in terms of a project coming online,” says Kim, in conversation with BNN Bloomberg on Wednesday. “That’s about to change with Deutsche Bucht coming online at the end of this year. They’ll get a significant boost in both revenue and cash flow.” “So if you look at it on 2020 estimates, it’s trading super cheap,” he said. “At some point, it’ll catch up.”

Northland reported its latest quarterly earnings on August 7 where its second quarter 2019 had sales of $344 million, a two-per-cent year-over-year increase, and adjusted EBITDA of $194 million, a six-per-cent year-over-year bump. Northland’s dividend currently sits at a 4.7 per cent yield.

“The other reason is that there has always been a little bit of an overhang simply because the founder and the share offerings and whether or not they were going to be put on sale,” Kim added. “He did finally sell a significant chunk of his shares earlier this year and that has had the price depressed for a little bit and the market had to chew through that.”

“So now everybody is just waiting to see if Bucht comes online properly and on budget. And it seems like it’s going to. They’ve now bought into a Columbian infrastructure play and I think that one of the reasons why they did that was to get stability of revenues versus being a merchant power producer where you’re constantly negotiating rates and everything. So, I think that will probably put some stability into their revenue and earnings profile and I think that it was a good move for them,” he said.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

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