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Impact: Neutral. This announcement is in line with our prior expectations as we have estimated precompletion revenues to continue to escalate throughout the final construction phases. We believe this announcement will further de-risk potentials suitors views of Northland's offshore wind potential in Europe. Recall, Northland initiated a strategic review process on July 12, 2016.
Northland Power
Northland missed on some expectations in the quarter, but it continues to get good results with its project management. The Company continues to advance its $6 bn construction portfolio on budget; construction at both Gemini and Nordsee One continues to proceed ahead of schedule. As announced on July 12, Management is pursuing strategic alternatives for the Company’s next phase as well as new projects around the world. We maintain our 12-MTP of $25.00/share and Market Perform ranking.
Impact: Neutral. Northland missed on some expectations in the quarter, but it continues to get good results with its project management. The Company continues to advance its $6 bn construction portfolio on time and budget; both Gemini and Nordsee One continue to hit their marks. Management has left its previous FY2016 EBITDA guidance range of $500 mm to $530 mm unchanged. As announced on July 12, Management is pursuing strategic alternatives for the Company's next phase.
Northland Power announced on July 12, 2016 that it was pursuing strategic alternatives. Although there are a number of alternatives open to Northland, we think the most likely outcome is a sale of the Company.Northland has an asset development team that can turn projects into cashproducing assets, which we think will be attractive to potential buyers.With the Company focusing on near-term liquidity rather than long-term dividend sustainability, we have raised our 12-month target price to $25.00/share, which reflects a 2019 cash on cash yield of ~9%, or an 11x multiple of the free cash flow we expect in FY2019.
Northland Power announced on July 12, 2016 that it was pursuing strategic alternatives to "review the options available for the next phase of the company's growth" and has retained financial advisors for this purpose. Northland believes this review is appropriate as it pursues the next phase of growth. Management still intends to advance its current ~$6 bn in construction projects in progress and pursue a 'business as usual' mentality until its future direction is determined.
On July 7, 2016, Northland announced its agreement with H.B. White Canada Corp. (HBWC) to settle all disputes and claims with regards to five ground-mounted solar projects in Ontario. At the same time, HBWC announced that it has filed CCAA in Ontario in concurrence with the settlement with Northland. The settlement agreements are conditional upon the CCAA proceeding receiving approval, after which, Northland would receive $6 mm, as well as other relief. Northland also anticipates that with CCAA approval, all liens and filed claims relating to Northland will be dropped by HBWC. All arbitration proceedings have been halted until the CCAA ruling.
Impact: Neutral to slightly negative. This announcement comes as expected after Northland's announcement on April 19, 2016 that the Ontario Court of Appeal confirmed the ruling of the Superior Court in favour of Northland. The Court had ruled that the Company's interpretation of the price escalator for power was correct, and therefore the OEFC owed revenues to the companies it had underpaid. As we stated earlier, we believe the OEFC will pursue all avenues to try and recover past payments and avoid future obligations to Northland, which included seeking leave to appeal the Court's decision. Though we expect a similar result to the previous appeal, the ~$225 mm of total unpaid revenue is still at risk.
With this report, we are downgrading Northland Power to an Underperform.
Impact: Neutral. Northland missed on some expectations in the quarter but it ontinues to get good results with its project execution.
Neutral. Northland missed on some expectations in the quarter but it continues to get good results with its project management. The Company brought the Grand Bend project to commercial operations earlier than anticipated and has made significant advancements on its offshore wind projects. Management has left its previous FY2016 EBITDA guidance range of $500 mm to $530 mm unchanged.
Northland risked not receiving an estimated ~$225 mm in total unpaid revenue from the OEFC had the Ontario Court of Appeal interpreted the agreements in OEFC's favour. Though the OEFC still has the right to seek leave to appeal the Court's decision to the Supreme Court of Canada, this announcement places Northland one step closer to receiving and retaining the unpaid revenues. We anticipate that the OEFC will pursue any possibility to recover the losses from the Court's decision, so we doubt this will be the last appeal of the decision.
Impact: Positive. Northland has demonstrated its ability to manage its projects. Completion of the 54 foundations ahead of schedule is a notable milestone, as the offshore wind industry has exposure to many variables that can delay installation. We expect that Northland will continue to meet or beat timeline estimates, as it has throughout this project's life.
Though the Company commented that it has no immediate intent to issue securities as a result of this renewal, the filing provides access to capital markets for future funding requirements. As Northland can finance up to 80% of any one project with debt, this equity capacity could allow NPI to take on a new $2 billion project.
On March 21, 2016, before market open, Northland announced that V. Peter Harder will be resigning from his position on the Board of Directors to assume a position as the Liberal government's Representative in the Senate, effective Friday, March 18th. Mr. Harder had been on Northland's Board of Directors since 2010, and most recently served as the Chair of the Compensation Committee and a member of the Audit Committee. Mr. Harder is a former Deputy Minister in the Government of Canada, serving with Industry Canada and the Department of Foreign Affairs and International Trade.
Northland announced that its 600 MW offshore wind project in the North Sea is now producing power from its first installed turbine. Installation is expected to continue throughout 2016 and the whole project remains on schedule (for a 2017 completion) and on budget. The installation of the turbines is led by the project's EPC contractor and co-owner of the project Van Oord Dredging and Marine Contracts BV, while the turbines are supplied by Siemens. The generated power will flow into the Netherlands and onto TenneT's high voltage grid. All power supplied prior to commencement of full commercial operations will be sold to fund part of Gemini's construction costs.
Generation of 1,302 GWh was below our 1,382 GWh estimate while revenue of $172 mm was in line with our/consensus $172 mm estimate and adjusted EBITDA of $94 mm was slightly below our/consensus estimate of $96 mm. Northland’s 600 MW Gemini offshore wind project has advanced with two turbines being installed in February 2016, with the remainder expected to be installed throughout 2016 and 2017. Nordsee One is on schedule and budget with all 54 foundations in production with >50% completed; a total of 18 foundations have been installed in the North Sea. We have maintained our 12-month target price of $18.50 per share and our Market Perform ranking.
Management has adjusted its FY 2016 guidance up 28% to be in the $500 mm to $530 mm range due to receipt of pre-completion revenues from Gemini, full year Cochrane Solar operations and Grand Bend becoming operational. In FY2016, Northland Management expects free cash flow per share to be in the range of $0.93 to $1.08 per share. This amount does not include lump sum retroactive payments from the OEFC court decision in March 2015, however it does include $28 mm of expected proceeds from the divestiture of 37.5% of Cochrane Solar.
Northland announced that on December 15, 2015, the first steel foundation, or monopile, was successfully installed at the 332 MW Nordsee One offshore wind project in the North Sea ahead of schedule and budget. The €1.2 billion project is to consist of 54 Senvion turbines and installation will continue for the remainder of 2015 and into 2016.
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Management has adjusted its guidance up $15 mm for FY2015 EBITDA to be in the $395 mm to $405 mm range as a result of the strong performance in 3Q15 and the ruling in favour of NPI with the OEFC. Dividend payments may exceed free cash flow due to the level of spending on growth capital and associated interest. FY2015e expects cash dividends to be 70-80% of free cash flow including the DRIP (95-105% excluding the drip). The Board and Management are committed to the current monthly dividend of $0.09 per share ($1.08 per share annually).
As we head into the third quarter, we have cut our target prices across our energy infrastructure universe (except- ing rail) as we have increased our dividend discount rate from 6% to 7%.
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Northland Power's 2Q15 was about implementing and carrying out on its construction plans. The Gemini offshore wind project reached an important milestone by successfully installing the first steel foundation on July 1, 2015, and now has 54 of these foundations in place. Unfortunately, continued complications in its Ground-Mounted solar projects have pushed the cost up by another $30 mm (4%).
Northland announced, after close on July 8, 2015, that the 600MW Gemini offshore wind project, located in the North Sea, is on budget and schedule with the first steel foundation, or monopile, successfully installed on July 1st, 2015. Since July 1, EPC contractor (and 10% equity investor) Van Oord has installed seven monopiles; the project will require 150 monopiles in total.
Northland announced on the morning of July 6, 2015, that it had made three changes to its management team: Sean Durfy, President and Chief Development Officer since January 2014, is leaving the Company; Mike Crawley, former CEO of AIM PowerGen and GDF Suez Canada, will be the new Executive Vice President, Business Development; Boris Balan, lead developer for several of Northland's existing projects and with Northland since 2001, will be Vice President, Europe and be based in London.
Northland Power’s 1Q15 was about achieving financial close on Nordsee One and Grand Bend, about recontracting its Cochrane and Kirkland Lake facilities, and recovering up to $200 mm from the OEFC in Ontario. Actual results, also important, beat our estimates. We maintain our $20.00 per share target price and Top Pick ranking.
Impact: Neutral. Northland reiterated its FY2015 EBITDA guidance of $380-$400 mm, but noted that results might be at the low end of the range if its issues with the Independent Electric System Operator (IESO) and its subsidiaries do not go well.
Northland Power announced on May 7, 2015, that it would be forced to shut down its 42 MW power generation facility in Cochrane, Ontario. The facility had a 25-year sales agreement with the Ontario Energy Finance Corp (OEFC) to generate power, and this agreement was extended by four months to May 2015, but any further agreement awaited a general strategy for privately contracted power generators.
