Polaris Infrastructure Inc. (TSX:PIF) is expected to make more attractively- priced acquisitions in 2021, according to one analyst
Capital Ideas Media | March 26, 2021 | SmallCapPower: A prominent investment theme that has emerged thus far in 2021 is renewable energy. ‘Green’ power sources such as solar and wind have become cost competitive with fossil fuels, prompting utilities to increase their power generation from renewables (excluding hydro and nuclear) by 34% between 2016 and 2019, the U.S. Energy Information Administration estimates.
(Originally published on Capital Ideas Media on February 16, 2021)
More significantly, renewable energy investments have been given boost by the election of U.S. President Biden, who has pledged to create a green U.S. energy grid by 2035 and spend US$2 trillion on renewable energy infrastructure and clean-energy research and development over four years.
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One renewable energy source that hasn’t received much attention, though, is geothermal. While solar depends on sunny days and naturally blowing air is needed to propel wind turbines, geothermal benefits from a constant flow of hot water and steam that can be drawn from inside the Earth.
Despite the substantially higher capital costs of getting a geothermal power plant up and running, the cost of geothermal energy can average just $0.03 to $0.035 per kilowatt-hour (kWh) according to the U.S. Department of Energy.
We believe one of the best ways for Canadian investors to participate in geothermal energy growth is through shares of Polaris Infrastructure Inc. (TSX:PIF).
Polaris operates a 72 megawatt (MW) geothermal facility in Nicaragua as well as three hydroelectric facilities in Peru with a total operating capacity of approximately 32 MW and a portfolio of early-stage development projects with an expected total of about 189 MW.
In a recent media interview, Starlight Capital CEO and CIO Dennis Mitchell said Polaris investors are expected to get emerging market growth that “trades at a materially discount” to the renewables sector.
He noted that despite the recent run-up in price he believes the stock still has “plenty of upside” with a lot of ESG (Environment, Social, and Governance) money flowing into these types of investments in 2021.
Raymond James analyst David Quezada is also bullish on the prospects for Polaris, noting that he expects more M&A activity from the Company early in 2021 (Polaris Infrastructure recently announced a C$45 million bought deal financing).
“PIF maintains $58 million in cash and has a net debt to EBITDA of just 2.1 times which, in addition to annual free cash flow of $29 million and strong relationships with lenders, positions the Company to undertake material M&A with resulting diversification driving an increase to the Company’s trading multiple,” he wrote.
“We believe these potential (M&A) transactions will represent significant catalysts.”
A definite plus for Polaris is its nearly 3.5% dividend yield (investors get paid to wait) and its tight capital structure (just 16 million shares outstanding).
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