Boralex Inc.
Highlights from the RBC Global Energy, Power & Infrastructure Conference
TSX: BLX | CAD 34.85 | Sector Perform | Price Target CAD 36.00
Sentiment: Neutral
We hosted Patrick Decostre (President & CEO) and Bruno Guilmette (Executive VP and CFO) and Stephane Milot (VP Investor Relations) at the RBC Global Energy, Power and Infrastructure Conference. Our key takeaway is that Boralex continues to advance many development opportunities at attractive returns, particularly in Canada. While organic growth remains the focus, management is also exploring strategic M&A opportunities, particularly in the U.S. and U.K.
Expecting attractive development returns. Management indicated that they expect their current projects under construction and in advanced development (e.g., Ontario battery storage) to earn mid-teens equity returns. If long-term interest rates reduce in the coming years, the projects may raise financing at a lower-than-expected cost, providing some upside to equity returns. Longer term, Boralex expects to target 10-12% levered after-tax equity returns.
Participating in many RFPs. Boralex is actively preparing for upcoming RFPs in its core markets, including Canada (upcoming tenders in Quebec and Ontario), France, the U.S., and the U.K. In Ontario, Boralex has been successful in winning three battery storage projects in the past year, and believe they have a first-mover advantage, coupled with establishing good relationships with First Nations partners. In Quebec, management is not discouraged by Hydro-Quebec's recent comments that they plan to partner directly with First Nations groups and municipalities to develop large-scale wind projects on their own. Management positively views the fact that Hydro-Quebec is looking to target significantly more wind generation in Quebec, and highlighted that Hydro- Quebec does not have a strong track record in partnering with First Nations and procuring wind projects.
Cautiously optimistic on New York development pipeline. In New York, Boralex was unsuccessful in the last NYSERDA expedited RFP process, and as a result, has no contracted project developments in the State. Management reiterated that they believe their bid assumptions were reasonable, and plans to rebid existing developments into future RFPs. With the large demand for renewable energy and the expedited RFP removing more competitive projects from the development pool, management is optimistic that their bids will eventually be successful.
Keeping an eye on M&A opportunities. Management highlighted that organic growth remains the focus, but they are also seeing attractive M&A opportunities (a buyers' market). Management expects organic growth returns to exceed M&A, and wants to avoid large M&A opportunities that may limit capital available for organic growth. Management highlighted that M&A targets need to be strategic, accretive to cash flow per share, and in the current countries that they operate. We believe potential M&A will be focused in the U.S. and U.K., which are markets where the company does not have critical mass.