💨 Share presentation 💨
Northland Power Inc.
$NPI (+0.17%)
CA6665111002
Or also."Gone with the wind" 💨🥸
Company Description:
Northland Power Inc. is a Canadian electric utility headquartered in Toronto. Northland operates power plants in Europe and Canada, with a focus on natural gas and renewable energy. [1]
Business Units [4]:
Offshore Wind
Onshore Renewables
Utilities
Natural Gas
New Technologies
Sales (in thousands CAD) [7]:
Offshore Wind (DE / NED): 1,259,247
Onshore Renewable Facilities (CA / ESP): 485,857
Natural Gas (CA): 425,572
Utilities (COL): 269,692
Other: 8,447
More than 70% of revenues are generated by Offshore/Onshore Wind, or the operation of wind turbines on water, and Onshore Renewables, which includes solar installations and wind power generation on land.
The attached chart shows the existing onshore and offshore wind farms and solar plants.
In the future, the company would also like to invest in South Korea, Japan, Scotland and Taiwan and finance offshore wind and solar projects. Some of these are already in the early/mid-stage.
About us according to homepage:
"Northland Power is a power producer dedicated to developing, building, owning and operating clean and green global power infrastructure assets in Asia, Europe, Latin America and North America. Our facilities produce electricity from clean-burning natural gas and renewable resources such as wind, and solar. We have a long track record of 35 years in business." [2]
Strategy according to company homepage:
"Northland aims to continually increase shareholder value by creating high-quality projects underpinned by revenue contracts that deliver predictable cash flows. We strive for excellence in managing our projects and operating facilities, always seeking opportunities to enhance performance and value. We focus on sustainability with the goal of improving the impact of resource usage in our environment." [3]
"We actively seek to invest in technologies and jurisdictions where we can apply an early mover advantage and establish a meaningful presence. We inspire our people to achieve excellence in everything, embracing and living Northland's values on a daily basis." [3]
We will certainly find out in this analysis whether Northland also puts its strategy into action. So what do we want to see from the facts and figures?
A. Secure and predictable cash flows.
B. Shareholder value.
C. Good/meaningful strategic alignment.
D. Sustainability in the projects.
Key figures Northland Power [6]*:
-KGV 2022: 10.7
-KGV 2023e: 24.6
-KGV 2024e: 18.6
-KGV 2025e: 25.4
-PEG 2023e (P/E/growth rate*): = 6.15 (rule of thumb: < 1 = very favorable)
-PEG 2024e: = 4.65
-Price to book 2023e: 2.25
-Price to book 2024e: 2.13
-FCF margin 2023e: 15.6%
-FCF margin 2024e: 16.1%
-Enterprise value to FCF 2023e: 34.5
-Sales growth: 2023e: -10.2%; 2024e: 4.7%; 2025e: -1.4%
-EBIT growth: 2023e: -20.6%; 2024e: 4.3%; 2025e: -1.7%
-Dividend yield 2022: 4.97% (payout ratio of the last 3 years at 83%)
Country key figures for Australia, NZ and Canada [9]:
-Total P/E ratio (excluding banking sector/financials): 11.64
-growth (excluding banking sector/financials): 11.99
-KGV Power (power generation): 18.72
-PEG Power (power generation): 1.18 (growth next 5 years 9.6%)
-Inflation Canada (forecast for 2023): 3.9% [10]
-Lead interest rate: 5% [11]
-Government debt: 66.4% of GDP [12]
-->Growth rate Northland*:
Based on Northland Power's general and sector-specific data and revenue, or EBIT forecasts, I assume average growth of 4% p.a.. Northland is growing slower than the market! 4% is even too high from a short-term perspective.
Side Note: Based on valuation metrics, we could have an attractively valued market (Australia, NZ and Canada)!
Based on the growth prospects, I don't see Northland as cheaply valued. I would rather put it in the "moderately valued" range.
Traderfox Scores [16]:
Quality Check: 13 out of 15 points
Dividend Check: 9 out of 15 points
Growth Check: 5 of 15 points
Rubric - What would Buffet say (Data from Annual Report 2022 [7]):
Criteria to be read in detail:
https://app.getquin.com/activity/XcuRrJwmyP
Income Statement:
-Net Margin: 2022: 39%, 2021: 12.89%*, 2020: 23.54% -->positive! (Buffet's target: >20%)
*In 2021, operating costs and depreciation quite high relative to comparable periods.
-Gross margin: 2022: 88.9%, --> positive! (Buffet's target: min. 40%)
-Sales/administration. and other overheads: 3.4% of sales --> positive! (Buffet's target: max. 30-40%)
-Interest expense: 30.78% of operating profit -->negative! (Buffet's target: <15%) Per HJA 2023 leicht rückläufig.
Key Note Income Statement: Gute Margen und geringe operative Kosten. Zinsaufwand etwas zu hoch!
Balance Sheet:
-Eigene Aktien (Treasury Shares): Nein! -->negative (no shareholder value through buybacks)!
--Debt < 4xEBIT: Ja! →positiv!
-Verhältnis kurzfr. Fremdkapital zu kurzfr. Vermögen: 0,81 -->positive! Ideally <1 -->The cash position alone covers 68%. One could pay therefore immediately 68% of the short term liabilities!
-EK ratio: 33.2% (2022)->all right. Target should be at least 40%.
-EK yield: 18.84% →positive (>15%)!
-Goodwill: 5% of total assets and 15% of equity -->reassuring and thus no reason to worry! For more details on goodwill:
https://app.getquin.com/activity/ymidZwhlTk
Key Note Balance Sheet: Solid debt situation with sufficient cash and therefore flexibility.
Cash flow statement:
2021 (previous year) in parentheses, figures in CAD (in thousands):
-Operating cash flow 1,832,983 (1,609,295)
-Cash flow from investing activities -629,683 (-1,030,863)
=Free cash flow 1,203,300 (578,432)
-Cash flow from financing activities -604,837 (-225,679) -->Main components are debt repayments and dividends paid.
Capital expenditures: 76% of net income (Buffet's target: <50%) -->negative! However, understandable due to the investment-intensive business. I therefore do not see this quite so critically.
Company classification according to Peter Lynch [12]:
-->Slow Grower (2-3%) or Stalwart (5%, max. 12%).
Peer Group/Competition [5]:
Here I took the liberty to use the Traderfox Peer Group Check. Attached is a picture with a few relevant comparative figures of selected companies. Northland does quite well (good net margin, fair P/E ratio):
Crescent Point Energy Corp (CA) P/E 4.37 -->but focus on oil+gas.
Iberdrola (ESP): P/E 16.52
Orsted (DK): P/E ratio 11.49
Energiekontor (DE): P/E 16.52 -->Whereby Energiekontor does not exclusively operate wind farms itself but resells them to generators and is therefore a potential business partner of Northland.
Siemens Gamesa (ESP): P/E ratio negative!
RWE (DE): KGV 9.32
EnBW (DE): P/E ratio 13.11
My own analyses on Iberdrola and Energiekontor can be found here:
https://app.getquin.com/activity/vXGiuLuFAK
https://app.getquin.com/activity/vrtMBgZQJu
Competitive Advantage/Burggraben:
-Over 30 years of experience in renewable energy. +
-Focus on business partners with good credit ratings. +
-Good margins, especially for an investment-intensive company. ++
Risks/weaknesses:
-Impairment risk.
Similar to Orsted, there is a short-term risk of impairment. See the following article:
Due to the low goodwill, however, I am reasonably reassured, even though wind farms are of course accounted for as the main item in fixed assets. There is still a risk here.
-dependence on wind conditions -
Associated revenue/profit fluctuations, which can also be seen from the latest half-year figures:
https://www.ecoreporter.de/artikel/nortland-power-wenig-wind-l%C3%A4sst-umsatz-und-gewinn-sinken/
-Low growth, compared to the industry. --
Chart:
Northland has been in a steady downtrend for more than a year. This looks anything but pretty and is also reflected in a low P/E ratio. It could well be that impairment risks and the low growth, compared to the overall market, play a major role and thus the short-term confidence has been somewhat lost.
Analyst estimates [15]:
Buy: 6
Increase: 9
Hold: 0
Reduce: 0
Sell: 0
Conclusion:
Nortland Power is a well-positioned company with good margins. The low growth rate is particularly disturbing, which is why I do not assume a favorable valuation. Nevertheless, a good dividend yield remains (therefore possibly something for @Simpson or @GoDividend 😁). A first entry could soon become interesting, although one should first invest with a smaller tranche to be able to buy more if the price falls.
Let's come back to Northland's strategic goals. Will these be met?
A. Secure and predictable cash flows: As an electric utility, solid and predictable cash flows will certainly be generated. Especially as a slow grower (Peter Lynch) these should also be predictable! However, due to the rather one-sided focus on wind power, one is also somewhat one-sidedly diversified and dependent on wind. There is certainly still some potential here if one wants to position oneself even more broadly for the future.
B. Shareholder value: Certainly given by the dividend. In order to bring about some price stability, one could certainly still think about share buybacks. The share price development is currently anything but good for shareholders. I also see the problem here in the lack of diversification in the business areas and the poor news situation.
C. Good/meaningful strategic orientation: See point A. I still see potential for improvement! One could use the good margins more sensibly and aggressively! Investments in the Asian region are already in the early stage. So a first step is done.
D. Sustainability in the projects: Certainly given. One invests mainly in Asian and European countries with sustainable projects (wind power / PV). I am of the opinion, however, that one could do a bit more. As an electric utility with a green focus, one is still too dependent on the gas business, even if the main revenue driver is the wind farms. It is true that a "NetZero" goal for climate neutrality is proclaimed. However, my subjective perception is that this could progress faster than communicated, since there is already a strong focus on wind.
Net Zero Target - Scope 1, 2 and 3
"As part of the Company's purpose to help build a carbon free world, it is establishing a net zero initiative that aims to achieve zero emissions across its operations by 2040. Efforts will focus on reducing GHG emissions intensity from Scope 1 & 2 by 65% by 2030 (from a 2019 baseline) while targeting a science-aligned net zero across all emissions scopes by 2040. "
Perhaps the strategy is also somewhat reflected in the Canadian government's climate policy. The CO2 emissions per capita in Canada are 14.3 (Germany 8.1). Greenhouse gases from oil and gas are quite high at 28.2% of total emissions [14]. Therefore, there is definitely still potential!
As always, no investment advice!
At the request of @Malte123
@RealMrKrabs
I hope you enjoyed it 😊
For more analysis, take a look here:
Sources:
[1]
https://www.northlandpower.com/en/investor-centre/investor-fact-sheet.aspx
[2]
https://www.northlandpower.com/en/about-northland/about-northland.aspx
[3]
https://www.northlandpower.com/en/about-northland/corporate-strategy.aspx
[4]
[5]
[6]
https://de.marketscreener.com/kurs/aktie/NORTHLAND-POWER-INC-1411045/fundamentals/
[7]
https://www.northlandpower.com/en/resources/Corporate%20Reports/NPI-2022-Annual-Report-FINAL.pdf
[8]
[9]
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datacurrent.html
[10]
https://de.statista.com/statistik/daten/studie/170383/umfrage/inflationsrate-in-kanada/
[11] https://www.ceicdata.com/de/indicator/canada/policy-rate
[12]
https://www.ceicdata.com/de/indicator/canada/government-debt--of-nominal-gdp
[13]
https://strategyinvest.de/6-typen-von-aktien-nach-peter-lynch/
[14]
https://www.gtai.de/de/trade/kanada/specials/kanada-volle-kraft-fuer-den-klimaschutz-795782
[15] https://de.marketscreener.com/kurs/aktie/NORTHLAND-POWER-INC-15914416/analystenerwartungen/
[16]
https://aktie.traderfox.com/visualizations/CA6665111002/EI/northland-power-inc
Graphs:
Facility and Office types:
https://www.northlandpower.com/en/resources/Corporate%20Reports/NPI-2022-Annual-Report-FINAL.pdf
Company homepage:
https://www.northlandpower.com/en/index.aspx
