Northland Power Earnings: Shares Drop on Offshore Wind Project Concerns

We lower our fair value estimate for Northland Power NPI to CAD 35 from CAD 38 following its first-quarter results. The primary driver of our lower valuation is a higher capital expenditure forecast. We view shares as undervalued.

Northland Power shares fell sharply (down 12% at the time of writing) following its earnings release. We are somewhat puzzled by the magnitude of the drop, but equate it to ongoing challenges with Northland’s two largest offshore wind projects in development. The company’s largest project in its backlog, Hai Long, still expects to achieve financial closing this year, but we view the timing as modestly delayed relative to prior expectations. In addition, Northland indicated its 1.2 gigawatt Baltic Power offshore wind project will see gross capital investment “just above” the high end of its prior CAD 5 billion-CAD 6 billion guidance due to ongoing inflation.

Northland’s financial results for the quarter were in-line as offshore wind resource was generally consistent with expectations. The company reiterated full-year financial guidance, but noted its Spanish renewable portfolio (approximately 15% of adjusted EBITDA) will see results come in CAD 16 million lower than expected due to lower pool power prices.

We believe Northland is in a good position to fund its growth development, provided no further delays with its Hai Long project reaching financial closing. Northland has executed a sell-down of the project, but the transaction does not close until financial closing on the project. In addition to sell-down proceeds, we expect Northland to utilize hybrid corporate bonds and (to a lesser extent equity to fund its remaining capital commitments.

Offshore wind developers have been heavily affected by the recent inflationary environment. We view Northland’s current challenges as consistent with others in the industry, but its smaller size (and greater asset concentration) magnify such challenges relative to larger peers.