Initiation Of Share Buyback Program Will Signal Confidence And Financial Flexibility

Key Takeaways

• Expansion into high-growth markets and completion of projects in Scotland and Quebec will enhance Boralex's operational capacity and revenue diversification.
  
• Development in battery storage and increased demand for renewable projects in key markets suggest sustained revenue growth and potential enhanced earnings.
  
• Adverse weather and project delays risk financial performance, while strategic asset sales and competitive pressures may challenge profitability and future growth prospects.

Catalysts

Engages in the developing, building, and operating power generating and storage facilities in Canada, France, and the United States.

• Boralex is poised to increase its revenue through the completion of key projects like Limekiln in Scotland and Apuiat in Quebec, enhancing their operational capacity and cash flow diversification across multiple geographies starting in 2025.
  
• The expansion of Boralex's development pipeline, which grew by over 1.1 gigawatts in 2024, is expected to provide a foundation for future revenue growth through successful project executions, especially in high-growth markets like North America and Europe.
  
• Strategic development and bids in high potential markets such as Quebec, Ontario, and the U.K., along with strong partnerships, are likely to bolster their revenue streams by tapping into increased demand and governmental support for renewable projects.
  
• The growth in battery storage projects, underscored by progress on the Hagersville and Tilbury projects, suggests an expectation for diversified revenue streams and enhanced earnings potential as the storage market grows.
  
• The initiation of a share buyback program indicates confidence in the company's undervaluation and is expected to positively impact the EPS by reducing the number of shares outstanding while signifying robust financial flexibility.

Boralex Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boralex's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 15.0% in 3 years time.
• Analysts expect earnings to reach CA$164.9 million (and earnings per share of CA$1.6) by about March 2028, up from CA$36.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CA$192.7 million in earnings, and the most bearish expecting CA$134 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.5x on those 2028 earnings, down from 84.5x today. This future PE is greater than the current PE for the CA Renewable Energy industry at 19.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

Boralex Future Earnings Per Share Growth

Risks

• Poor weather conditions impacted production negatively in 2024, particularly in France and Canada, which could affect revenue and earnings due to lower-than-expected output.
  
• Delays in project construction, such as Apuiat’s challenges and weather difficulties, might increase costs and delay revenue generation from new projects, impacting net margins.
  
• Execution risks in expanding projects in new regions, like the U.K. and upcoming projects in Ontario, could lead to unforeseen expenses or delays, affecting future cash flow and operating income.
  
• The anticipated increase in competitors and changes in market policy or regulations, especially in the U.S. and Europe, could pressure project profitability and margins.
  
• The need to sell assets to raise capital for growth may mean parting with revenue-generating assets, which can impact overall earnings if not strategically managed.

Valuation

• The analysts have a consensus price target of CA$38.545 for Boralex based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$45.0, and the most bearish reporting a price target of just CA$35.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$1.1 billion, earnings will come to CA$164.9 million, and it would be trading on a PE ratio of 29.5x, assuming you use a discount rate of 7.4%.
• Given the current share price of CA$29.6, the analyst price target of CA$38.55 is 23.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.