Boralex Inc T.BLX

RBC

[retiredcf]

June 6, 2023

Boralex Inc.
Highlights from the RBC Global Energy, Power & Infrastructure Conference

TSX: BLX | CAD 38.41 | Sector Perform | Price Target CAD 42.00

Sentiment: Neutral

We met with Bruno Guilmette (Executive Vice President and CFO) and Hugues Girardin (Executive Vice President and General Manager, North America) at the RBC Global Energy, Power and Infrastructure Conference. We believe the key messages are that Boralex is seeing significant growth opportunities in North America (particularly in Quebec and Ontario), they can internally fund their development pipeline over the next year, and are targeting to achieve an investment grade credit rating by 2025.

Details

Seeing a significant ramp-up in North American opportunities. Management indicated that the biggest surprise over the past several years is the significant ramp-up in renewable opportunities in Canada, particularly in Quebec and Ontario. Over the past year, Boralex was awarded projects in Quebec (wind), Ontario (battery storage), and New York State (solar and battery storage). Management expects to bid into renewable auctions this fall in Quebec, Ontario and New York State.

Well funded for the year absent M&A. The company has a conservative payout ratio (41% of discretionary cash flows in 2022), and management believes the company can internally fund growth over the next year absent M&A. Management continues to target an 8-10% levered after-tax equity return, but we believe they are targeting the high end of their range and using conservative assumptions.

Targeting investment grade credit rating by 2025. Management is targeting to achieve an investment grade credit rating by 2025, and expects the credit rating agencies to focus on FFO/Debt (did not disclose a target threshold). Management plans to debt finance their growth projects more conservatively going forward, using less project-level debt and adding some corporate-level debt. Management believes that in order to achieve an investment grade credit rating, the portion of growth capex financed with debt may decline by ~10%.

Staying disciplined on M&A opportunities. Management highlighted that their focus continues to be organic growth, but will look at M&A opportunistically. Management indicated that there are a number of assets for sale in the market, and they are being very selective. A potential transaction would need to be accretive and have a good strategic fit (good development pipeline or located in a region where they would like to actively develop projects).