Renewable energy stock Boralex is a Buy, says iA Capital

Results were mixed for the first quarter from Boralex Inc (Boralex Stock Quote, Charts, News, Analysts, Financials TSX:BLX), according to Naji Baydoun, analyst for iA Capital Markets. But Baydoun has retained a “Buy” rating on the stock, saying in a Thursday report that the renewable power company has both solid free cash flow growth and a potential upside from its development pipeline.

Boralex, which has ownership interests in about 3.0 GW of installed wind, hydro and solar generation in France, Canada and the United States, reported its Q1 2023 on Wednesday, showing 1.7 GW of consolidated power generation over the quarter, up one per cent from a year earlier.

Adjusted EBITDA was $192 million, up five per cent year-over-year, and free cash flow was $0.64 per share. 

“In the first quarter, we continued to implement our 2025 Strategic Plan initiatives, including through the addition of large development projects to our project portfolio and the integration of the two acquisitions completed in 2022,” said Patrick Decostre, President and Chief Executive Officer of Boralex, in a press release. 

“The first quarter was also marked by the announcement of new programs to help accelerate the energy transition and new tendering programs in our key markets, particularly in Quebec and elsewhere in Canada,” he said.

On the Q1 numbers, Baydoun said the $192 million in EBITDA compared to his estimate at $193 million and the consensus at $191 million, while $0.64 in FCF was under his estimate at $0.82 per share and the Street at $0.77 per share.

Operationally, Baydoun noted Boralex is commissioning a second battery storage project at its Plouguin wind site, as the company continues to develop its energy storage projects and gain further experience with those systems. That should ultimately lead to more growth down the line, according to the analyst.

He said Boralex expects to participate in a number of procurement processes for new power, particularly in wind in Quebec and storage in Ontario. In the US, investors can expect more intel on its New York development projects this year.

Baydoun said BLX likely has sufficient liquidity to self-fund ongoing growth projects, although the company expects to advance additional financing initiatives to further support growth investments.

“Overall, we continue to like BLX’s (1) highly contracted operations (~11-year weighted average contract term), (2) solid FCF/share growth (~6-8 per cent/year, CAGR 2022-27E), (3) potential upside from the Company’s development pipeline (>4.0GW of prospects), (4) stable dividend (~2 per cent yield, ~30-50 per cent long-term FCF payout), and (5) potential upside from M&A (excluded from estimates/valuation),” Baydoun wrote.

With his “Buy” rating, Baydoun maintained a target of $47.00, which at press time represented a one-year return including distribution of 23.4 per cent.