TSX:NPI - Post Discussion
Post by
retiredcf on Feb 27, 2023 1:48pm
TD
Northland Power Inc.
(NPI-T) C$33.20
Q4/22 Results Above High End of Guidance; Funding Plan Expanding
Event
Northland reported Q4/22 results after market close on February 23. Q4/22 adjusted EBITDA of $353.1 million was above our estimate of $321.0 million and slightly above the consensus forecast of $344.5 million. Q4/22 free cash flow (FCF) of $0.06/share was similarly above our estimate of ($0.09)/share. Results were above the top end of guidance ranges provided as recently as February 3. Development expenses were also below expectations.
Impact: NEUTRAL
Q4 variances: EBITDA from the Spanish renewable portfolio exceeded our estimates, and corporate development expenses were below our forecast. Offshore wind generation improved 6% y/y; EBITDA from this segment benefited from elevated market prices and fewer unpaid curtailments. Relative to our estimates, this was mitigated by lower-than-forecast margins.
2023 guidance is unchanged (introduced on February 3). Management continues to anticipate 2023 adjusted EBITDA of $1.2-$1.3 billion. FCF/share guidance (after development expenses of ~$0.40/share) is $1.30-$1.50; the $1.40 midpoint implies a payout ratio of 86%.
Management is expanding its approach to funding growth. Target equity funding sources are a combination of available liquidity, ATM activity, sell-downs of development projects near financial close, hybrid debt, and asset refinancing. The company is now considering partial sales of earlier-stage development projects, given buyer appetite. We also note that trading valuation pressure makes the ATM program less attractive as a funding source. We believe most development projects are possible sell-down candidates, except for Baltic Power.
We reiterate our BUY recommendation but are lowering our 12-month share price target to $43.00 from $45.00. The latter reflects contracted parameters in our sum-of-the-parts valuation to address modest pressure on funding availability.
TD Investment Conclusion
Northland retains a deep growth pipeline, but organic returns are facing some pressure tied to capital cost inflation. The company is complementing large-scale offshore wind development opportunities with short-term growth initiatives that provide a cash-flow bridge. We continue to believe that Northland is trading at an excessive valuation discount.
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