Northland Power Remains in a Strong Position to Fund Its Growth Objectives

We maintain our CAD 38 fair value estimate for Northland Power NPI following its fourth-quarter results. We view Northland shares as undervalued.

Northland’s 2022 results for adjusted EBITDA and adjusted free cash flow per share came in 17% and 11% higher than its original guidance thanks to nonrecurring items and strong European power prices. Adjusted EBITDA guidance for 2023, which Northland unveiled at its analyst day a few weeks ago, is expected to decline approximately 10% due to the absence of 2022 tailwinds and continued investment in project development. We expect adjusted EBITDA to grow at a 10% annual rate through 2027, at the high end of company guidance, but emphasize growth will be lumpy given large offshore wind projects in the backlog.

Northland is in a strong position to fund its 2023 capital expenditures and its longer-term growth ambitions. The company has issued over CAD 2 billion in equity over the past three years (one quarter of its current market cap) thanks to a strong share price during this time. We expect equity issuance to be sharply lower in 2023 as further asset sell downs and a potential hybrid bond issuance comprise much of its remaining funding needs. We reiterate our exemplary capital allocation for Northland given its conservative financing track record.

Northland’s development pipeline remains robust with over 13 gigawatts of identified projects. Near-term focus remains on achieving the financial close of Hai Long, the company’s 1 gigawatt Taiwanese offshore wind project, which has seen delays given market-specific factors in the region. Northland’s expansive development pipeline should allow the company to selectively pursue only projects meeting its return hurdles and divesting less attractive projects.