TD Capital Power Corp.
(CPX-T) C$38.14
No Surprises in Q4/23; Ongoing Focus on U.S. Growth
Event
Capital Power reported Q4/23 results on February 28 before market open. Q4/23
EBITDA of $313 million was slightly below both our estimate of $322 million
and Bloomberg consensus of $318 million. Q4/23 normalized AFFO/share of
$1.38 was above both our estimate of $1.24 and the consensus forecast of $1.26;
lower-than-forecast sustaining capex was the primary driver of the beat relative to
our AFFO/share estimate.
Impact: NEUTRAL
No major surprises in Q4/23 results. FY2023 EBITDA matched the midpoint of
CPX's annual guidance (revised in January), while FY2023 AFFO was 2% ahead
of guidance due to sustaining capex that was below our forecast.
2024 guidance (provided in January) is unchanged. Alberta wholesale prices
have averaged $120/MWh YTD; recent forwards imply an average price for 2024
of ~$79/MWh, which is consistent with CPX's hedged levels. The company has
modestly increased the average pricing of its 2025 and 2026 hedges.
Beyond the current secured growth pipeline (mostly Alberta and Ontario),
management suggested an ongoing focus on the U.S. CPX's previous
agreement for 1 GW of panels from First Solar (2026-28) points to U.S. solar
development as likely driving its next wave of renewable power development.
We anticipate more details regarding the company's mid-term positioning and
focus on grid-critical natural gas generation at its May 7-8 Investor Day event in
Edmonton. We reiterate our BUY recommendation and $49.00 target price.
TD Investment Conclusion
CPX's Q4/23 results were close to expectations. The company's natural-gas
repowering initiative at Genesee 1+2 is expected to produce the most efficient
combined-cycle units in Canada, and bring the company off-coal in Q3/24. CPX
has also demonstrated its ability to complement its fleet with additional renewable/
thermal power development projects. Progress on the Genesee CCS initiative has
slowed, but we view this initiative as necessary for longer-term decarbonization in
Alberta. We believe secured initiatives will support CPX's annual dividend growth
target of 6% through 2025, further diversify its operations, and complement the
company's high-quality Alberta portfolio.