By Johannes Kotilainen
Canada’s energy industry has long been dominated by oil and gas. The recent slide in oil prices, though, may slowly shift our energy market to less volatile sources that are not affected by a change in commodity prices. Wind, solar, and hydro do not have a variable price associated with them. Once these projects have been developed the water, sun, or wind provides a source of energy for free, the only costs being development and maintenance. Since electricity is sold at a stable price, and fixed contracts can secure a price for a longer term, it is a relatively safer source of revenue when compared to the fluctuating oil prices of the past few years.
Boralex Inc.(TSX: BLX) with a market cap of $603.5 million is one company that is producing power from these renewable sources. Boralex’s current power stations generate 674MWs of power and have plans to increase production by another 228MWs by the end of 2015. Currently 50% of its energy production is in Canada, 38% in France, and 12% in the United States. Its generating capacity is composed of 69% wind, 23% hydro, 7% thermal and 1% solar. Boralex has 97% of its current generating capacity sold in long-term contracts, some of which last until 2035. This givesBoralex a more predictable revenue stream.
Boralex’s profitability, however,has been spotty over the years given the acquisitions it has made and the debt it has incurred as a result, in addition to the seasonal ups and downs in generation. Long-term contracts enable it to steadily pay down its liabilities though. And once the company becomes consistently profitability it will continue to have a steady source of cash flow to develop even more projects. Another plus is this renewable energy stock has a dividend yield of 3.9%, which in combination with the long-term strategies of the company means it could generate above-average returns for decades to come.
Recently Boralex acquired 66.7% of a wind power plant to be located in Frampton Quebec. This wind power station will consist of 12 wind turbines that will supply 24MWs of electricity under a sales power contract to Hydro Quebec, giving it an early start to its generation capacity growth target for the year.
Another potential promising acquisition for Boralex is its $400-million takeover of wind power company Enel Green Power France. Acquiring Enel’s wind portfolio, which consists of 12 wind farms producing 186 megawatts of power, will boost Boralex’s generation capacity by 25%. This will be an immediate gain for them, but they will also gain 310MWs of new wind projects that Enel has in its pipeline to develop. These new projects will insure more growth for Boralex over the next few years. (Source: Richard Blackwell The Globe and Mail, Dec 15, 2014)
As a result of these new acquisitions, analysts at TD Securities have increased Boralex’s price target from $16 to $17 in a research report issued on January 12, 2015. Currently TD has a ‘buy’ rating on Boralex stock, with a price target that suggests a 33% increase from the stock price of $12.76 when the report was published.
Find out why sustainability is important in business and investing: http://www.smallcappower.com/posts/why-sustainability-is-important-in-business-and-investing-johannes-green-investing
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