Clean Energy Demand Powers Growth for this Utility

Northland Power is a power producer that develops, builds, owns, and operates clean and green power infrastructure assets in Canada, Europe, and other global markets. As one of Canada’s first independent power producers, Northland Power has global operating facilities generating over 2.6 GW of electricity, with an additional 130 MW of generating capacity under construction and 1,100+ MW in the project pipeline.

Northland has in-house development, plant design, financing, and operations capabilities. The company has a long track record of more than three decades in the business of producing electricity from natural gas and renewable energy sources. The company is highly diversified by assets and technologies i.e. thermal (40%), wind (55%), and solar (5%). It has over $10 billion of high-quality power generating assets in operation. Northland has operations in North America, Europe, Latin America, and Asia. Its large geographical footprint provides ample opportunities in leading markets. Northland’s operating segments are offshore wind (accounting for 60% of 2019 revenues), thermal (25%), on-shore renewable (13%), and other (2%).

Investment Data
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Revenue Growth & Market Exposure

Northland works with indigenous partners, municipalities, and independent companies to develop and operate power generation facilities. Given its three-decade-long history in the power industry, the company has a good track record of bagging high-quality projects. Northland’s customer base is primarily the residential sector, which is entirely regulated. Its ability to deliver projects on-time and on-budget further make it a preferred choice of customers. A good track record of operational excellence helps Northland to extend its long-term contracts with existing customers.

Northland Power has grown its revenues at a rate of ~24% CAGR over the last decade. It is well-positioned to benefit from the growing trends of a global shift towards renewable power, offshore wind expansion, and construction of large power and infrastructure assets globally. The company could also leverage its early mover advantage to establish a presence in new markets.

Northland Power reported good quarterly results driven by stronger operating results from offshore wind farms as well as contributions from Deutsche Bucht project which is expected to meet the power needs of ~300,000 households, and deliver an estimated saving of 700,000 tons of greenhouse gas emissions per year. Northland’s 130 MW La Lucha project remains on track for completion in the second half of 2020. This project marks Northland’s first investment in Mexico. The majority of the company’s offshore wind revenues are contracted under long-term agreements, but it still has some limited exposure to the wholesale market of electricity. Northland Power continues to expand its pipeline activity by establishing early-stage development projects in several new jurisdictions. It has 1,100+ MW of visible renewable power projects pipeline. The company continued its operations amidst the pandemic as many of its facilities are deemed critical infrastructure.

Northland has a growing presence in Latin America and Asia. Its EBSA (electricity distribution utility) acquisition is expected to drive future opportunities in Colombia and Latin America, diversify its asset base and add to the regulated utility business. Northland closed the acquisition in January and Q1 results include contributions from EBSA.

Dividends

Northland Power is known for delivering strong and consistent returns and stable dividends to its shareholders. Its total shareholder return stood at 32% in 2019. The company has also demonstrated solid growth in adjusted EBITDA and free cash flow per share over the last five years. It has an attractive annual dividend yield of 3.6% and a dividend payout ratio of 62%. Northland last raised its dividend by more than 11% and has grown them at 3.6% CAGR over the last three years.

Northland Power has a proven track record of growing cash flows. The company’s cash flows are derived from a diversified asset base comprising of wind, natural gas, hydro and solar facilities. Long weighted average contract lives of natural gas and wind assets add to the visibility of long term stable cash flows. Given its financial flexibility and extensive development expertise, Northland is well-positioned to identify and develop future opportunities to expand its global development footprint. Its free cash flow in the first quarter was $1.10 per share compared to $0.79 per share in 2019, representing an increase of 39% YoY. The company expects higher development costs in 2020 for growth opportunities and incurred $0.06 of FCF/ share in the quarter as development cost. It ended the quarter with over $420 million of cash and liquidity available. The company enjoys stable investment grade credit ratings by top rating agencies.

Northland Power expects adjusted EBITDA in the range of $1.10-$1.2 billion and free cash flow to be in the range of $1.70-$2.05 per share. The acquisition of EBSA will add to vertical integration and participation in all segments of the electricity supply chain given its grandfathered rights. EBSA’s utility infrastructure business is expected to generate average, mid-single-digit accretion to FCF per share during the period ending 2023 and increasing accretion thereafter in the long-term. The company stands a good chance to gain from an exciting portfolio of attractive and strategic global development and partnering opportunities. Its well-diversified, modern fleet of high-quality global assets and proven excellence in managing projects and operating facilities should further support future growth.

Competition

Northland Power competes directly with other utility companies in North America. It competes with several utility companies such as Fortis Inc., Brookfield Infrastructure Partners, TransAlta Renewables, ATCO, etc. having a huge presence in the US and Canada. Fortis is a leading Canadian utility company with assets worth $57 billion and operating through ten utility operators. TransAlta Renewables is one of the largest generators of wind power in Canada while ATCO is a diversified company providing services and business solutions globally.

Here is the full competition in the sector.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:FTSFTSFortisUtilitiesUtilities - Regulated Electric0.6652.1924.2519.5719.572.670.03663.660.715441.910.094667Tollbooth - RegulatedNOYESYESNOCanada1
TSE:BIP.UNBIP.UNBrookfield Infrastructure PartnersUtilitiesUtilities - Diversified0.6763.9120.1179.7979.790.800.04444.443.548542.150.136586Tollbooth - RegulatedYESYESNONOCanada1
TSE:BEP.UNBEP.UNBrookfield Renewable Partners L.P.UtilitiesUtilities - Renewable0.4862.0119.560.000.00-0.610.04624.621.000042.170.075546Tollbooth - UnregulatedNONONONOCanada1
TSE:HHHydro OneUtilitiesUtilities - Regulated Electric0.5527.1416.229.149.142.970.03743.740.341541.010.079236Tollbooth - RegulatedNONONONOCanada1
TSE:EMAEMAEmeraUtilitiesUtilities - Diversified0.7354.0613.3815.9615.963.390.04724.720.752242.550.107069Tollbooth - RegulatedNOYESYESNOCanada1
TSE:AQNAQNAlgonquin Power & Utilitties CorpUtilitiesUtilities - Renewable0.7718.5711.0019.1019.100.970.04414.410.844540.620.130878Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CUCUCanadian UtilitiesUtilitiesUtilities - Diversified0.7231.678.6414.4014.402.200.05505.500.791641.740.146468Tollbooth - RegulatedNOYESYESNOCanada1
TSE:NPINPINorthland Power Inc.UtilitiesUtilities - Renewable0.4838.437.7120.3120.311.890.03123.120.6349121.200.041835Tollbooth - UnregulatedNONONONOCanada1
TSE:ALAALAAltaGasUtilitiesUtilities - Regulated Gas0.6216.924.7311.7411.741.440.05675.670.6667120.960.056736Tollbooth - RegulatedNONONONOCanada1
TSE:ACO.XACO.XAtcoUtilitiesUtilities - Diversified0.6939.054.4911.9611.963.270.04464.460.532441.740.168867Tollbooth - RegulatedYESYESYESNOCanada1
TSE:RNWRNWTransAlta Renewables Inc.UtilitiesUtilities - Renewable0.5215.844.2139.9539.950.400.05935.932.3490120.940.081444Tollbooth - UnregulatedNONOYESNOCanada1
TSE:INEINEInnergex Renewable Energy IncUtilitiesUtilities - Renewable0.4322.843.980.000.00-0.600.03153.151.000040.720.031546Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BLXBLXBoralex Inc.UtilitiesUtilities - Renewable0.4134.893.580.000.00-0.240.01891.891.000040.660.067855Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CPXCPXCapital Power CorporationUtilitiesUtilities - Independent Power Producers0.5428.993.050.000.00-0.700.07077.071.000042.050.142758Tollbooth - UnregulatedNONOYESNOCanada1
TSE:SPBSPBSuperior PlusUtilitiesUtilities - Regulated Gas0.3512.302.1762.9662.960.200.05855.853.6000120.720.058514Tollbooth - RegulatedNONONONOCanada1
TSE:TATATransAltaUtilitiesUtilities - Independent Power Producers0.328.061.6927.1727.170.300.02112.110.566740.170.021104Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Ownership of sustainable infrastructure assets and significant development opportunities across multiple jurisdictions and technologies act as strong growth enablers for Northland Power. Northland Power’s contracted cash flows have supported its stable dividend payouts. Ample liquidity, a strong balance sheet, relative stability of revenues, and a free cash flow profile positions the company better to weather the current environment. It is also favorably placed to gain from the growing global demand for environmentally friendly energy sources increases in the long-term. The company should continue its dividend growth streak in the future on the back of strong investment in regulated assets and infrastructure growth projects.

Dividend Adjusted Chart by StockRover.

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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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