Boralex gets a target raise from iA Capital

Renewable energy stock Boralex Inc (Boralex Stock Quote, Chart, News TSX:BLX) has rallied well over the past couple of months but there’s more where that came from, according to Naji Baydoun of iA Capital Markets. In a Friday report, Baydoun maintained a “Buy” rating while raising his target price from $44/share to $45/share for a projected one-year return of 15.2 per cent.

Founded in 1982 and headquartered in Kingsey Falls, Que., Boralex engages in the development, construction and operation of renewable energy power facilities primarily in Canada, France, the United Kingdom and the United States.

Baydoun’s updated analysis comes after the Governor of New York and the New York State Energy Research and Development Authority (NYSERDA) announced the awards for the state’s fifth annual renewable energy solicitation program, with Boralex being awarded five projects.

Baydoun’s target raise comes as a reflection of both partial value for these projects and expectations for further growth in New York.

“From a strategic perspective, the significant capacity award in New York’s latest renewable power RFP is a clear and important validation signal of BLX’s organic growth strategy in the US (in our view),” Baydoun said.

Overall, Boralex’s award from the state totalled 540MW, along with approximately 77MW of co-located storage, meaning the company received most of the 800MW worth of projects it bid on throughout the process.

“Although it remains too early to precisely estimate the potential financial contributions and full value of these projects, based on our preliminary financial analysis, we estimate that these projects could lead to an approximate $1 billion total investment (approximately $250 million of equity), and generate approximately $80 million to $90 million/year of EBITDA and approximately $20 million to $25 million/year of FCF (projects to be contracted for 20 years, although we don’t expect CODs before 2026),” Baydoun said.

The selected photovoltaic solar electricity generation projects will be located across upstate New York, with the biggest of the five projects being the Fort Covington Solar Farm, a 250 MWac project located in the Towns of Fort Covington and Westville.

In terms of scale, the next biggest of the projects is the Newport Solar project, a 130-MWac photovoltaic solar energy generation facility in Deerfield and Newport, followed by the 100-MWac Fort Edward Solar project in Fort Edward and Argyle. The remaining projects are much smaller in scope with the 40MWac Foothills solar farm in Mayfield and the 20 MWac Easton solar farm in Washington County.

Once constructed, the solar farms will generate more than 1 TWh of solar electricity annually, enough to power more than 141,200 homes annually, while also helping to create jobs, boost the local economy and provide significant tax revenue to the towns, counties, and local school districts, according to the company.

“Today’s announcement solidifies Boralex’s role in New York State’s energy market during this critical expansion of renewable electricity generation,” said Patrick Decostre, President and Chief Executive Officer of Boralex in the company’s June 2 press release. “These projects showcase the strategic, creative approaches to solar farm development and community engagement our reputation is built on. I am proud of the Boralex team and their efforts to create clean, competitive energy.”

From a valuation perspective, Baydoun forecasts the company’s EV/EBITDA multiple to drop from the reported 13.8x in 2021 to a projected 12.6x in 2022 and then to 12.3x in 2023 to present a premium in relation to the 10.6x peer group average of Canadian independent power producers.

Meanwhile, Baydoun forecasts the company’s P/FCF multiple to drop from the reported 31x in 2021 to a projected 25.3x in 2022, then to a projected 24.1x in 2023 to present a premium in relation to the 17.6x peer group average of Canadian independent power producers.

Baydoun noted that the new projects were excluded from any potential financial contributions from the recently awarded projects from the iA estimates until further de-risking occurs.

“Overall, we continue to view BLX as one of the best organic growth investment vehicles in the Canadian renewable IPP space, with highly contracted operations (approximately 13-year weighted average contract term), solid FCF/share growth (six to nine per cent per year, CAGR 2020-25E), potential upside from the Company’s development pipeline (more than 3GW of prospects), stable dividend (approximately two per cent yield, approximately 30 to 50 per cent long-term FCF payout), and potential upside from M&A (excluded from estimates/valuation),” Baydoun said.

Boralex’s stock price has bounced up to a 19.4 per cent return over the course of 2022, with its return ramping up after dropping to an early low of $30.25/share on January 14 before eventually hitting a 2022 high of $41.97/share on April 8.