Post by
perplexed01 on Mar 08, 2024 9:44am
cibc analyst: neutral target US$ 7.50 up from $7 nov 12/23
Q4/23 First Look: Results Ahead Of Expectations; No Update On Asset Sales & No 2024 Guidance
Summary. AQN reported Adj. EBITDA that was 7%/10% above our/ consensus estimates while EPS of $0.16 was 20%/14% above our/ consensus estimates. Utilities results were stronger albeit HLBV and investment income, which are harder to forecast, were the primary drivers. Power results were weaker than forecast while lower interest expense and taxes helped drive the higher-than-forecast EPS. As expected, there were no updates on the strategic review of the power business; it’s unclear if we will get any clarity/update on the conference call this morning. Further, AQN did not provide 2024 EPS guidance nor a 2024 capex budget. While results were stronger, and the stock may show a modest positive reaction today, the ongoing strategic review is more important to AQN’s outlook and share price trajectory. Conference Call: 8:30 a.m. ET; (800) 715-9871, ID# 7706966.
Adj. EBITDA. Reported $334MM vs. consensus of $304MM (range: $270MM-$320MM) and our $311MM estimate. Overall, the utilities’ results were stronger (15% higher op. profit vs. our forecast) on higher net revenue for the water utilities coupled with higher contributions from HLBV/other investments, which are harder to forecast. Power was weaker than we assumed, while corporate G&A was slightly lower than we forecast.
Adj. EPS. Reported $0.16, above consensus of $0.14 (range: $0.11-$0.19) and our estimate of $0.13, largely due to the higher EBITDA along with lower interest expense and taxes.
Additional Takeaways:
Strategic Review Of Renewable Business. As expected, AQN did not provide any updates on the strategic review. We expect updates later in Q2 or early in Q3.
Missed 2023 Guidance. As expected, despite better-than-forecast Q4 results, FY23 EPS of $0.53 was bellow AQN’s guidance of $0.55-$0.61.
No 2024 Guidance. Given the pending sale of the power business, AQN will not provide 2024 EPS guidance. We are at $0.49 (down 2% Y/Y), while consensus is at $0.54.
Capex & Regulatory Update. AQN invested $260MM in Q4 (we assumed $245MM). AQN commissioned the 108MW Shady Oaks II wind in Q4/23 and the 100MW New Market solar facility reached COD on March 1, 2024. AQN did not provide 2024 capex. On the regulatory front, BELCO’s initial appeal to overturn a suboptimal rate case outcome was denied (unclear if another appeal is made). The EnergyNorth rate case outcome remains uncertain. New rates were approved for Empire’s Arkansas customers and 4 smaller rate cases were filed in Q4.
Liquidity/Funding. Liquidity was ~$1.0B (was ~$1.4B at the end of Q3).
Price Target Calculation Our valuation is based on a sum-of-the-parts valuation that includes two main components, as outlined below. Adding the two components together we get a value of $7.38.
• Utilities. We use a P/E valuation for utility operations applying a 13.5x multiple to our 2025 EPS estimate for the utility segment then discount this value to the present using our cost of equity assumption of 9.85%. Based on these assumptions, we calculate a value of $4.88.
• Power. For the power assets (including Atlantica dividends and tax equity cash payments), we use a risk-adjusted DCF valuation approach, including the current operations and identified, contracted development projects. We project these cash flows out to 2029, discounted at our estimated WACC of 6.4%. For the terminal value, we use a 10.3x multiple on our 2029 EBITDA estimate, given the mix of wind, thermal, solar and hydro asset types. Based on these assumptions, we calculate a value of $2.49 for this component.