The acquisition strengthens the utilities stock’s growing presence in Latin America.
Utilities stock Northland Power Inc. (TSX—NPI) has announced the acquisition of a Colombian regulated utility business for $1.1 billion. The company has agreed to purchase a 99.2-per-cent interest in electricity generation and distribution company Empresa de Energia de Boyaca (EBSA) from a couple of companies in the Brookfield Infrastructure family.
The acquisition builds on Northland’s presence in Latin America and gives it an entry point into Colombia, a target market with a stable economy and a growing middle class. Northland says EBSA “operates in a stable regulatory framework offering an inflation-protected perpetual cash flow profile and serves as a platform for future growth”.
Northland Power is a global developer, owner and operator of sustainable infrastructure assets. The company owns or has an economic interest in 2,429 megawatts (MW) (net 2,014 MW) of operating capacity and 399 MW of generating capacity under construction.
Six-month sales and earnings up
The company continues to deliver solid results. For the six months ended June 30, 2019, Northland made $280.5 million, or $1.06 a share, compared with $247.0 million, or $0.90 a share, the year before.
Sales rose 2.2 per cent to $842.4 million, due to higher production at the company’s thermal facilities and higher wind resource at the on-shore renewable facilities. This year’s results also benefited from the effect of reduced rate escalation at the Iroquois Falls co-generation station in the second quarter of 2018, as well as maintenance outages at a facility last year.
Though gross profit failed to keep pace with revenue growth, rising just 1.5 per cent to $781 million, expense savings further down the income statement helped boost the bottom line by 13.6 per cent.
For example, plant operating costs decreased 4.2 per cent, or $5 million, largely caused by the timing of repairs at the Gemini wind farm and lower personnel costs at the Nordsee One wind farm, both of which are located in the North Sea.
New investments in both Mexico and North Sea
Northland continues to make progress on growth projects. During the second quarter, the company announced a final investment decision on the construction of its 100-per-cent owned La Lucha 130 MW solar project in the state of Durango, Mexico. The company has also commenced construction, with project completion expected in the second half of 2020. The project is a first step in a broader planned expansion in Mexico.
In Europe, Northland is focused on the 269 MW Deutsche Bucht offshore wind project in the North Sea, where wind turbine installation is well underway. The project is on schedule and is expected to be complete by the end of 2019.
Northland trades at just 13.4 times its forecast 2019 earnings of $1.81 a share. Its annual dividend of $1.20 a shares yields 5.0 per cent. Northland is a buy.
This is an edited version of an article that was originally published for subscribers in the October 4, 2019, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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Money Reporter •11/5/19 •