Boralex BLX Alphabet Soup: BCAP In, PTCs In Limbo

admin — Wed, 03 Feb 2010 17:21:23 +0000

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.

BPT-UN Distribution Cut to $0.40/Unit

admin — Tue, 15 Dec 2009 21:30:17 +0000

RBC CM Sector Perform, Above Average Risk, Price Target: $4.00 (prev. $3.75)
The fund announced a cut in the distribution to $0.40/unit (from $0.70/unit) starting with the distribution that will be declared in January 2010. RBC CM had forecast a distribution cut to $0.50/unit effective in 2011. The fund cited the weak forest products industry (lack of wood residue supply) and the strong Canadian dollar (lower cash flows from U.S. hydro plants) as the main drivers behind the cut. With respect to timing, the fund wants to improve its cash reserves and financial flexibility, and the earlier-than-forecast cut will retain roughly $18 million in 2010. Since the fund will be retaining roughly $0.30/unit of cash by cutting the distribution one-year earlier than RBC CM had expected, it has increased its price target to $4.00/unit (from $3.75). Prior to the cut, RBC CM expected the total return on the units to be roughly 10% consisting of an approximate 17% cash yield coupled with a forecast 10% decline in the unit price. Looking forward, RBC CM expects a similar total return consisting solely of a cash yield.

TSX Commentary » Boralex Power Income Fund

Boralex BLX Alphabet Soup: BCAP In, PTCs In Limbo

BPT-UN Distribution Cut to $0.40/Unit