Post by
sculpin2 on Jul 08, 2020 2:50pm
We have initiated research coverage of Polaris with a Buy
Polaris Infrastructure (PIF-T, Buy) – We have initiated research coverage of Polaris with a Buy rating and $25.50/sh target. Polaris gives investors exposure to a portfolio of 4 renewable operational assets in Nicaragua and Peru with combined capacity of ~100 MW. Despite Polaris' improved risk profile and growth prospects, the company's valuation remains in disconnect with what we believe to be a promising future. PIF currently trades at ~4.6x EV/EBITDA (NTM), below its historical average of 5.0x. Polaris' valuation discount to its peer group is 6.4 turns, higher than the historical average discount of 6.1 turns. Additionally, PIF's current dividend yield of 5.8% is ~120 bps higher than its peers average of 4.6%, with a payout ratio of <25% (of cash from ops.) vs its peers average of ~40%. We believe Polaris Infrastructure Inc. shares represent an excellent risk/reward investment at current levels. As the company continues to ramp up its Peruvian assets and diversify its geographical footprint further, its valuation discount vs the peer group will improve. The portfolio includes San Jacinto geothermal property with capacity factor of >85%, providing baseload power (~12% of Nicaragua's annual power needs) and stable operating cash flows of ~$55 million per year. Since taking the helm in mid-2015, PIF's management team conducted significant work at San Jacinto, investing >$70 million over a period of ~3.5 years in highly-successful work programs that stabilized the reservoir and boosted average power generation by ~30%. Polaris remains significantly under leveraged compared to its peers, with current net-debt-to-EBITDA of <2.5x vs peers at ~6.0x. The company's improved operational and financial risk profiles are attracting lenders. This is highlighted by the recent $27 million, 8-year loan transaction with Brookfield Infrastructure Debt Fund, which is helping Polaris fund its growth in Peru and Panama. Thus, Polaris has room to take on additional debt and at attractive terms, significantly reducing funding risk for its future growth from its existing pipeline and/or through M&A.
Beacon Research