Buy Northland Power for offshore wind, says iA Capital

iA Capital Markets analyst Naji Baydoun delivered an update to clients on Thursday on renewable energy company Northland Power (Northland Power Stock Quote, Charts, News, Analysts, Financials TSX:NPI), where he reiterated a “Buy” rating, saying Northland offers the best investment for the offshore wind space.

With its headquarters in Toronto and founded in 1987, Northland Power develops, builds, owns and operates power generation projects, with ownership interest in about 2.8 GW of net thermal and renewable capacity, with offshore wind as a focus.

Baydoun’s update comes after Wednesday’s announcement by Taiwan’s Ministry of Economic Affairs (MOEA) that it has selected ten offshore wind projects to receive grid allocation. Part of its first phase of a round three auction process, the projects are expected to be placed into service in 2026-27, with Northland’s CanWind (about 1.2 GW) and NorthWind (about 600 MW) being two of the winning bids. 

Baydoun said NPI has been pursuing the two development sites in Taiwan ahead of the auction, and the company has early engineering design and preliminary key procurement and supply chain work already underway. The analyst is a little more conservative on timelines, however, projecting “end of the decade” for commercial operation and, given the early nature of the projects, with significant de-risking milestones still to come, he is declining from putting any value from the initiatives into his model on NPI at this point.

At the same time, Baydoun said investors should be focused on Northland’s Hai Long offshore wind project in Taiwan, one for which a partnership with Gentari International Renewables was recently announced (Gentai is to acquire 49 per cent of Northland’s ownership stake, effectively resulting in NPI having 30.6 per cent ownership but remaining the single largest shareholder of the project and taking the lead role in construction and operation.

“Overall, we view NPI as the best investment vehicle for investors to gain exposure to the offshore wind investment theme. NPI offers investors an attractive mix of (1) stable cash flows from contracted power assets (~2.8GW net in operation, ~10-year weighted average contract term), (2) strong potential long-term FCF/share growth (primarily driven by offshore wind projects), (3) longer-term potential upside from organic development activity and accretive M&A, and (4) an attractive dividend profile (~3 per cent yield, 50-70 per cent long-term FCF payout),” Baydoun wrote.

With the update and “Buy” rating, Baydoun reiterated a target price of $47.00 on NPI, which at press time represented a projected one-year return including distribution of 23.9 per cent.