Why is this renewable energy stock a good addition to your portfolio : Boralex Inc. (TSX:BLX)?

Boralex Inc. (TSX:BLX)  is an energy producing company founded in 1990 in the province of Quebec, Canada that develops, builds, and operates renewable energy facilities in Canada, France, the United Kingdom, and the United States.

Boralex has headquarters in Kingsey Falls, Quebec, Canada and is a major player in renewable energy specializing in four sectors of activity: wind, solar, hydroelectricity, and storage. Since, its inception it has won numerous awards.

Their installed capacity has more than doubled over the past five years and now stands at 3 GW. Company is developing a portfolio of close to 4 GW in wind and solar projects and close to 800 MW in storage projects, guided by their values and their approach to corporate social responsibility (CSR).

Through profitable and sustainable growth, Boralex is actively participating in the fight against global warming. They have more than ten subsidiaries operating all around the world.

Highlights and News Updates

• On February 24th, 2023, corporate social responsibility report on Boralex reported that Boralex surpassed its 2022 CSR objectives.

• On February 21, 2023, Boralex commissioned 65 MW in Brittany and crossed the milestone of 3 GW of installed capacity worldwide.

• On December 29th, 2022, Boralex acquired 50% stake in five US wind farms. It completed the acquisition of EDF Renewables North America’s interest in five operating wind farms with a total installed capacity of 894 MW, located in Texas and New Mexico, the US.

• EDF Renewables’ interest represents 447 MW of installed capacity. With this acquisition, Boralex’s total installed capacity worldwide will increase to 2956 MW, marking a significant step towards achieving Boralex’s 2025 Strategic Plan.

• On December 22nd, 2022, Boralex commissioned 25 MW of solar and wind farms in France.

• On December 20th, 2022, three Boralex projects got selected in France’s first technology-neutral tender.

• On October 28th, 2022, Boralex unveiled its new management model: A consolidated management team and geographic business units to support Boralex’s growth.

• On June 02, 2022  Boralex announced that five solar farms totaling 540 megawatts (MW) of generation and 77 MW of storage have been selected by the New York State Energy Research and Development Authority (NYSERDA) as part of its solicitation for utility-scale renewable energy certificates. Once constructed, the solar farms will generate more than 1 TWh of solar electricity annually, enough to power more than 141,200 homes annually.

Key Data

Fourth Quarter 2022 Highlights

• Revenue stood at CA $328 Mn up by 64% compared to last year’s fourth quarter.

• Net Profit stood at CA $14 Mn down by 12.5% compared to last year’s fourth quarter.

• Net Margin in fourth quarter stood at 4.27% which was 8.04% in last year’s fourth quarter.

• Basic and diluted EPS stood at CA $0.14, and yearly it was CA $0.30.

• Non-operating expense stood at CA $96 Mn, up by 146% compared to the last year’s fourth quarter.

• 21% increase in production capacity and steady growth of the project pipeline

• Net debt to market capitalization ratio of 40% as at December 31, 2022, compared to 48% at the end of 2021.

• Discretionary cash flows1 up 34% in the fourth quarter and 27% in     fiscal 2022

Financials

Revenue of the company has grown at CAGR of 12.15% in the last five years and after reporting loss in FY2018 and in FY2019 company started to book profit.

In FY2018 and company booked loss due to currency fluctuation, increased price of raw material and maintenance cost of CA $2 Mn each, increase in development cost of CA $10 Mn, non-recuring items such as non-production penalties and development rights of CA $9 Mn, impairment loss of CA $13 Mn in PPE.

In FY2019 too the reasons were same with the currency fluctuation  of CA $44 Mn. High interest payment also contributed to low profits.

In FY2022, majority of the revenue came from wind, solar and hydro respectively. Geographically revenue came  40% from France, 36% from Canada and 24% from US. Operating expense increased by 94% which impacted the profit of the company.

Company has seen up and downs in its debt specially in FY2020 and in FY2021 due to CA $72 Mn debt for refinancing of Niagara Region wind farm, CA $140 Mn drawdown on the debt of Sainte-Christine portfolio wind farm and project, and drawdown of approximately CA $201 Mn on the credit facility. But after the FY2021 company has reduced its debt Company’s 55% debt came from Canada, 39% from France, and 6% from US.

Quarterly revenue of the company is on positive trend, but profit fell after Q2.

Currently EPS of the company is CA $0.30 up by 87.5% compared to last year’s EPS. In FY2018 and in FY2019 EPS was negative due to negative earning.

Forecast

Right now, the company is trading at CA $42.52 with 1-year projected target around CA $51 and a low estimation of CA $35.74; average price target is CA $45.68.

The capitalization of company is around CA $4.367 Billion. The intrinsic value of the stock is approximately CA $74, but it is currently trading at CA $42.78. Boralex Inc. is currently undervalued and thus this makes it a right time to invest in it.

Technical Analysis

• The stock has corrected more than 16% and now it has made bullish W-pattern.

• Right now, RSI (76.27) indicator is above 50 which show it is good time to invest in this stock.

• The stock has potential to bounce back up to 19% from current market price. Analysts are bullish on this stock.

• The stock is also above 50-day EMA.

Indicators Summary – Buy

• The price action analysis of the stock is indicating a positive uptrend in the stock. Market sentiments are bullish.

• MACD (1.18) indicator is giving bullish signal.

• VWAP (39.64) indicator is bullish on the stock.

Risk factors

• Currency fluctuations impacts their earnings like it did in FY2018 and in FY2019.

• Because of the high debt the company makes huge interest payments which eats away a heavy chunk of company’s profit.

• The company sells energy at a fixed cost.. With the rising inflation all around the world due to increasing demand of energy,  the selling price being fixed leads to low profits.

• Company also has contingency and commitment of approximately of CA $841 Mn.

Stock Recommendation

Boralex has constantly increased its energy production and its presence all over the world. Canadian government is helping companies which are producing clean energy with various incentives and change in tax rule which shows that these companies  have the  government support which can lead them to  grow more.  Russia-Ukraine war has  further led to shift towards clean energy. European countries consume a large amount of  energy compared to any other country and that’s why company earned massive revenue from France. Due to the importance of energy this company can turn into a great investment opportunity.

MarketFacts gives a “Buy” rating on the stock at the Closing Price of CA $42.52 as of April 13th, 2023.

CMP (CAD)  (April 13, 2023)	CA $42.52
Target Price	CA $50.75
Recommendation	Buy