Teeing Up A Refined Strategy At The Upcoming Investor Day Our Conclusion
CPX’s Q4 results and update were largely as expected given the recent
guidance refresh in January and limited added disclosures with an upcoming
Investor Day in May. Further, recent and planned policy updates in Alberta
are expected to have limited impacts, while the initial Clean Energy
Regulation (CER) concerns are being addressed. Overall, CPX continues to
lean into its natural gas strategy while also highlighting the strength of its
development fleet and operational capabilities. Post our model/valuation
update, our price target is maintained at $43. CPX remains Neutral rated.
Key Points
Policy/Rule Updates Not Disruptive. Alberta’s policy updates on market
reform relating to renewable development are largely consistent with our and
CPX’s initial expectations, with modest tweaks that are expected to have
limited impacts on both incumbent assets and development in the region.
Additional power market policy updates in Alberta are expected soon (may
get some indications at an Alberta electricity market industry conference next
week), but should also be modest given an acknowledgment of the need to
balance affordability with reliability. Recent updates on potential changes to
the CER suggest stakeholder concerns are also being addressed and there
is increased confidence that the government will deliver a workable solution
for incumbent assets, but we won’t know for sure until the CER is finalized
later this year.
Investor Day To Offer Refined Strategy. We expect the upcoming Investor
Day (May 7/8) to emphasize the strength of CPX’s gas strategy and potential
partnerships, and maybe less focused on increasing the renewable asset mix
(maybe opens the door to selective asset sales). M&A will likely remain a key
driver of the gas strategy given the growing U.S. opportunity, while CPX may
also highlight progress/plans for its solar development to meet the panel
supply obligations with First Solar (2026 commitments on track, working on
2027-2028). Overall, these strategy shifts could highlight an evolution in the
company’s asset mix toward more gas and greater focus in the U.S.
Growth & Capital Update. There were no changes on the Genesee
repowering, and efforts to advance the CCS component have stalled until
there is clarity on the potential for a contract for difference on carbon. CPX
continues to advance its renewables strategy and should move forward on
previously announced Ontario investments. On funding, CPX has ~$1B of
liquidity (post the La Paloma/Harquahala closings) and expects to upsize a
preferred share maturity this year, with added proceeds to help fund
development capex. It is also looking at partnership opportunities, but there
is nothing to report at this point. Overall, we expect CPX will remain
measured on growth and balance sheet discipline/flexibility.
Estimate & Valuation Update. We’ve made adjustments to our segment
forecasts, funding assumptions, realized pricing, opex, closing of completed
acquisitions, and other tweaks. Our 2024-25 Adj. EBITDA/AFFO estimates
are up ~1%-2%. Our DCF-based price target is maintained at $43.