TSX Commentary

Boralex (BLX) – $9.40 – Alphabet Soup: BCAP In, PTCs In Limbo
Outperform, Above Average Risk, Price Target: $13.00
Boralex finalized benefits under the U.S. Biomass Crop Assistance Program (BCAP). Boralex’s agreements will reduce annual costs by about US$12 million per year for the next two years. RBC CM estimates that the positive impact from lower wood residue costs due to the BCAP could be offset by the elimination of production tax credits (PTCs), with that program having expired at the end of 2009 with no renewal as of yet. With regards to its financial forecast, RBC CM estimates that the positive benefit from the BCAP is offset by the lack of an extension (at least as of now) for the PTC program. However, today’s announcement provides a clear and tangible benefit to the company compared to the uncertainty of an extension of the PTC program. Further, a renewal of the PTC program would provide additional upside to RBC CM’s forecast. RBC CM expects CFFO/share to increase in Q4/09 to $0.45 from $0.30 in Q4/08 due to improvement in the wind segment and the wood residue segment. RBC CM’s $13.00 price target is based on a discounted cash flow that models the company’s assets until the end of their useful lives using an unlevered equity discount rate range of 7.5% to 8.5%, which is a modest premium to the range RBC CM uses for low risk, contracted power assets in Canada, due to a combination of increased commodity exposure and higher foreign exchange rate risk.