Boralex on Track to Achieve Its 2025 Targets

We lower our fair value estimate for Boralex BLX to CAD 39 per share from CAD 41 following its fourth-quarter results. The change in our fair value is a result of lower near-term results from the company’s French wind portfolio following government initiatives and power price moves. We also adjust our Morningstar Uncertainty Rating to Medium from High, in line with other renewable developers under our coverage. We view shares as slightly undervalued.

Boralex reported a strong 2022, with discretionary cash flow increasing 27% year on year as higher French power prices and stronger Canadian wind resource boosted results. French power prices appeared to be an even larger tailwind for Boralex in the first half of 2022, but government intervention is ultimately proving to limit some of the upside. On Dec. 30, 2022, the French government enacted the 2023 Budget Act, which will introduce a 90% tax on revenue above a threshold (EUR 100/megawatt-hour). As a result, Boralex recorded a provision of CAD 110 million in the fourth quarter. Despite the recent government intervention, management indicated its decision to cancel certain contracts early in an effort to take advantage of high market prices is still a net positive.

Boralex made significant strides toward its long-term strategic objectives in 2022. The company sold a 30% stake in its French wind portfolio in April and reinvested the majority of the proceeds into its December 2022 acquisition of a U.S. wind portfolio. The U.S. currently represents Boralex’s third largest market—behind France and Canada—but management expects it to be its largest market longer term. We would not be surprised to see further acquisitions targeted at the U.S. market given Boralex’s healthy balance sheet and conservative payout ratio (40% in 2022).

Current operating plus secured projects total 3.6 gigawatts, placing the company in a sound position to reach its 4.4-gigawatt capacity target by 2025.