Strong finish to 2023, with development catalysts in 2024
Our view: Boralex had a strong finish to 2023, and has a busy 2024 commissioning 290 MW of wind and solar developments, bidding in upcoming RFPs, and advancing contracted developments. Management has a strong track record of growth through development and M&A, and is one of the favoured Canadian renewable names for investors. However, we are maintaining our Sector Perform rating as we believe the shares are fairly valued relative to peers.
Key points:
Actively participating in RFPs. Boralex has participated in several RFPs since September 2023. In Quebec, two of their projects totalling 315 MW were selected in the Hydro-Quebec RFP. In Ontario, they submitted bids for 525 MW of storage projects. In New York, Boralex submitted 240 MW of solar projects in the expedited RFP in January 2024, which had relatively strict bid parameters, and the results are planned to be announced in April 2024. Boralex still has significant (~500 MW) uneconomic solar developments that were previously awarded contracts from NYSERDA that management plans to bid into the next NYSERDA RFP (anticipated this fall).
Capturing power price upside in France. The price cap in France was raised to €105/MWh (up from €100/MWh) and the level of revenue shared with the government above this threshold reduced to 50% (from 90% in 2022 and 2023). Management indicated that they were able to generate an extra $20 million in EBITDA in 2023 from their strategy in France of terminating ~326 MW of contracts in Q4/22 and recontracted the projects at a higher price through 2026. With the retention of additional revenues above the price cap, management expects to realize some additional upside in 2024 compared to 2023.
Maintaining 2025 guidance, implying that management continues to explore M&A opportunities. Management has maintained its end of 2025 run-rate guidance of 4.4 GW (vs. 3.3 GW in 2023), $800-850 million of Adjusted EBITDA combined (vs. $675 million in 2023), and $240-260 million of discretionary cash flows (vs. $179 million in 2023). Management indicated that growth will be driven 50/50 with M&A and organic developments through 2025, and 70% organically thereafter. We believe the current environment is a buyers' market for renewable assets, and management reiterated that they will only do M&A if it is accretive and creates long-term value.
Revising estimates to reflect upside in France. We revised our 2024 and 2025 Adjusted EBITDA (Combined) estimates to $683 and $704 million, respectively (from $651 million and $677 million). Our updated estimates reflect higher contribution from the assets in France.