More Desjardins While he reduced his fourth-quarter 2024 financial estimates for Canadian independent power producers based on “mixed weather resources,” Desjardins Securities analyst Brent Stadler is expecting “a relatively positive tone” from companies “given the underlying strong demand for renewables.”
“On a total-return basis in the year to date, our coverage stocks have underperformed the broader resource-heavy S&P/TSX Composite Index by 2.6 per cent but have outperformed by 3.9 per cent over the past three months as inflation has shown signs of easing and rates have started to descend,” he said. “Our IPP coverage universe is generally sensitive to bond yields given its defensive nature and bond-like cash flow characteristics. While rates are in the driver’s seat and primarily affect valuations, we believe fundamentals and sectoral tailwinds remain and continue to gain momentum. We would highlight a positive environment for project returns given continued strong demand from both corporates and governments due to decarbonization objectives and energy security/independence initiatives, with more state-backed RFPs and corporate demand at record levels. Overall, we expect our coverage companies to remain relatively bullish on their outlooks on the quarterly calls. We do not expect any material capex increases or changes to project completion schedules.”
Mr. Stadler continues to recommend investors seek out companies with “solid growth, optionality to fund pipelines and catalysts” and named Boralex Inc. his “Top Pick” in the group.
“Given its positioning in Canada, France (where it is the #1 IPP), the US and its more recent success in the UK, we continue to believe BLX’s growth outlook is positive. In our view, BLX is the onshore renewables name to own, given its retained FCF, ability to manage industry headwinds, and its delivery of projects largely on schedule and on budget, as well as its impressive rate of backfilling MW in its development pipeline,” he said.
He has a “top pick” recommendation and $44 target for Boralex shares. The average target on the Street is $40.10.
He also named Capital Power Corp. as his “preferred name” with a “buy” rating and $51 target, exceeding the $44.11 average.
“We believe CPX offers investors compelling value at current levels. It offers exposure to the hot renewables and Alberta power market, and provides a unique re-rate angle, which could add torque to its share price as it works to remove coal (in 2024) and repower the G1 and G2 facilities to be the most efficient gas assets in Canada,” said Mr. Stadler. “Longer-term (2026–27 timeframe), we believe another re-rate is possible as CPX cleans up its strategically important natural gas assets through a hydrogen/carbon capture, utilization and storage (CCS) solution.”