New Projects And Partnerships Will Expand Renewable Capacity Amid Great British Energy Support

Key Takeaways

• Expansion through new projects in Quebec, Scotland, and Ontario is expected to drive future revenue growth and enhanced risk management.
  
• Strategic acquisitions and agreements in the UK and France could boost revenue through favorable market conditions and high-return contracts.
  
• Adverse weather, power curtailments, competitive pressures, and regulatory uncertainties could negatively impact Boralex's revenues, margins, and project returns.

Catalysts

Engages in the development, construction, and operation of renewable energy power facilities in Canada, France, the United States, and the United Kingdom.

• The ongoing development and anticipated commissioning of Boralex's Apuiat project in Quebec and Limekiln project in Scotland by the end of 2024 are expected to drive future revenue growth due to the addition of substantial capacity.
  
• The construction of storage projects in Ontario, anticipated to be completed by the end of 2025, is poised to enhance Boralex's revenue streams and reduce risk associated with resource variability, potentially boosting net margins.
  
• The acquisition of the 50-megawatt Sallachy wind project in Scotland will expand Boralex's portfolio, positioning the company to increase revenues from the UK market, which has strong growth potential due to favorable market conditions and government support.
  
• The signing of long-term renewable energy purchase agreements with Nestle and Saint-Gobain in France suggests improved future revenue and net margins from higher return contracts compared to government RFPs, due to the customized and potentially higher-priced nature of corporate PPAs.
  
• The strong demand for renewable energy in North America and Europe, coupled with political support and initiatives like Great British Energy, is expected to continue fostering an environment conducive to revenue growth and potentially favorable returns on investments in clean energy projects.

Boralex Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boralex's revenue will grow by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.5% today to 18.3% in 3 years time.
• Analysts expect earnings to reach CA$179.6 million (and earnings per share of CA$1.74) by about January 2028, up from CA$89.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.9x on those 2028 earnings, down from 28.5x today. This future PE is greater than the current PE for the CA Renewable Energy industry at 18.6x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.5%, as per the Simply Wall St company report.

Boralex Future Earnings Per Share Growth

Risks

• Adverse weather conditions in Canada and France negatively impacted Boralex's production, which could lead to decreased revenues and earnings if these conditions persist.
  
• Increased power curtailments in France resulted in lower-than-expected production, affecting EBITDA and funds from operations (FFO), which could pressure net margins.
  
• A competitive environment and pricing pressures in tenders, influenced by the entrance of German developers in French markets, might squeeze potential returns, impacting net earnings.
  
• Higher costs associated with corporate power purchase agreements (PPAs) in France, due to lower offtake credit, could lead to increased project financing costs, potentially affecting net margins.
  
• The uncertainty around political outcomes and regulations, particularly with the U.S. elections, may affect return on investment and project viability, posing a risk to projected revenue streams.

Valuation

• The analysts have a consensus price target of CA$39.18 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$46.0, 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$981.8 million, earnings will come to CA$179.6 million, and it would be trading on a PE ratio of 27.9x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of CA$24.69, the analyst's price target of CA$39.18 is 37.0% 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.