Boralex Inc T.BLX

RBC Update - Outperform $13 Target

[scissors14]

SEPTEMBER 16, 2010

Boralex Inc. (TSX: BLX)

Finally Gets BPT.un Over the Goal Line; Rolling Out

2012 Estimates

Outperform

Above Average Risk

Price: 7.52

Shares O/S (MM): 37.7

Dividend: 0.00

Float (MM): 19.4

Price Target: 13.00

Implied All-In Return: 73%

Market Cap (MM): 284

Yield: 0.0%

Strategic shareholders: Cascades (34%); other holder (14%)

Event

Boralex Inc. announced that more than 66 2/3% of BPT.un units have tendered to

its takeover offer.

Investment Opinion

• Enough BPT.un Units Tendered. Boralex announced that 68% of Boralex

Power Income Fund (TSX: BPT.un, $4.98; OP/AA) units have tendered to its

offer, exceeding Boralex's minimum 66 2/3% threshold to proceed with the

transaction. Boralex will use the proceeds from its September 15, 2010

issuance of $95 million of convertible debt (has the same terms as the

convertible debt offered to BPT.un unitholders) to fund the cash component of

the offer.

• Offer for Remaining BPT.un Units Extended to September 28, 2010.

Boralex extended its offer to unitholders who have not tendered their units to

7:00 pm (ET) on September 28, 2010. The company is planning to hold a

special meeting of unitholders (date to be determined) to seek approval of a

special resolution to amend a clause in the trust agreement to enable the

compulsory acquisition of the remaining units.

• Views on the Takeover: Near-Term Cash Flow Benefits Outweigh the

Negative Impact on Value. The current state of the financial markets has

introduced uncertainty regarding Boralex's ability to finance new projects on

attractive terms (e.g., leverage levels and overall borrowing costs). As such, we

see the benefits from the significant near-term cash flow accretion as modestly

outweighing the negative impact on valuation from the conversion price that is

slightly below our net asset value for the company. The strong near-term cash

flow profile from BPT.un dovetails nicely with the capital requirements for the

Seigneurie wind projects in Quebec.

• Rolling Out Our 2012 Estimates. We forecast Boralex's 2012 CFPS (basic) to

increase to $1.85 (from $1.79 in 2011E) due to a forecast modest improvement

in power prices and slightly lower interest expense, partially offset by higher

gas prices at the Kingsey Falls facility (gas price increases to market prices

under its gas purchase agreement).

• Valuation. Our $13.00 price target (unchanged) is based on a discounted cash

flow that models the company's assets until the end of their useful lives using

an unlevered equity discount rate range of 7.5% to 8.5%.