Growth/Returns While Proactively Managing Funding Needs Our Conclusion
While not securing any contracts in the latest NY RFP might be viewed as
disappointment, we are encouraged that BLX has remained disciplined in its
bidding strategy. The ability to rebid in NY and a breadth of contracting
opportunities across its core markets allow BLX to find the efficient frontier
on achievable returns. We remain positive on BLX’s growth outlook. Further,
BLX has a solid balance sheet and continues to proactively manage funding
needs to support its growth plans. BLX remains a preferred name in our
coverage. We reiterate our Outperformer rating; our price target ticks up to
$39 on higher estimates.
Key Points
Finding The Efficient Frontier On Returns. BLX’s solar projects submitted
in the most recent RFP in New York (NY) were not awarded contracts. At this
point, BLX does not know what the clearing pricing was and how close (or
far) it was to securing a contract. While on some degree this is disappointing,
periodically losing in RFPs is a sign that BLX continues to find the efficient
frontier in terms of risk-adjusted returns across its development platform.
Plus, this expedited RFP had less opportunity to ladder bids to find the
clearing price. Further, BLX bid assuming domestically sourced solar panels
with the foresight that tariffs on Chinese imports could resurface, which did
occur this week. BLX can rebid its projects in future RFPs in NY. Moreover,
recent wins in Quebec and Ontario RFPs show that BLX can be competitive
and meet its return target, and that having multiple bidding opportunities
allows BLX to optimize target returns. With this in mind, BLX continues to
develop projects for upcoming RFPs in Ontario, Quebec, NY, the U.K. and
France, and is looking to optimize/repower assets in the U.S.
M&A Remains An Option. BLX’s ideal candidates for M&A include a portfolio
of operating assets that can be optimized and a good pipeline of projects to
develop. These portfolios could comprise a team with regional expertise in
core markets where BLX is currently underrepresented, such as in the U.S.
and U.K. BLX believes the M&A market still favours buyers, suggesting the
potential to transact at attractive valuations. Nevertheless, we believe BLX
should continue to exercise discipline and can afford to be patient.
Solid Balance Sheet & Proactive Approach To Funding. BLX’s funding
position remains solid with $575MM of available liquidity for growth. This
provides roughly 18 months of runway for equity obligation. BLX also
continues to look at other sources of capital, including minority interest or non-
core asset sales that help optimize funding costs and provide optionality. In our
view, BLX does a great job of proactively managing its funding position, and
we continue to have confidence that BLX can navigate its funding needs.
Estimate & Valuation Update. Our 2024/2025 EBITDA estimates increase
~3% on assumed higher realized pricing in France. After our model/valuation
update, our DCF-based price target increases to $39 (was $38).