Polaris Renewable Energy Stock: On A Path To Double Earnings

Solar and wind energy farm

24K-Production

The following segment was excerpted from this fund letter.


Polaris Renewable Energy (TSX:PIF:CA)

Roughly 11% of the portfolio is allocated to U.S. utility AES (AES) and Canadian independent power producer Polaris Renewable Energy. Both positions have had modest performance this year. Polaris has been more volatile than is justified by the underlying business, putting in an all-time high this year at the beginning of August before tumbling 30.0%.

We are thrilled with management’s performance over the last 12 months. COVID threw a serious wrench into the firm’s asset acquisition and development strategy, and for much of 2021, it looked as if management was making very little progress in getting the ship back on course. This proved inaccurate, with multiple acquisitions of operating and developing renewable projects in South America announced this year. Equally important, management has increased the geographic diversity of energy-generating assets it owns and has done so while securing very high-priced, long-term power purchased agreements.

Polaris remains undersized, though, and as a result, has been unable to borrow at reasonable prices, despite a decent balance sheet that is not overly encumbered with debt. Furthermore, management does not appear to have waded into the green bond market, despite the ability to do so. In theory, Polaris should be able to secure better pricing than the LIBOR+7%, which is what it secured on the refinancing of a senior debt facility representing more than 50% of the firm’s outstanding debt in February of this year.

Given that Polaris is on a path to more than double earnings between now and 2025, with an associated doubling in returns on capital employed, we believe the company has a bright future. This future could be even brighter if management had access to more and cheaper capital. We would not like to see Polaris taken out by either a larger competitor or a private equity shop, but as a platform for building an independent power producer in South America, it has a strong start and represents a very appealing asset. We are keeping an extremely close eye on whether a lack or cost of capital will impair its working capital and ability to scale.


Opinions expressed herein by Massif Capital, LLC (Massif Capital) are not an investment recommendation and are not meant to be relied upon in investment decisions. Massif Capital’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is limited in scope, based on an incomplete set of information, and has limitations to its accuracy. Massif Capital recommends that potential and existing investors conduct thorough investment research of their own, including a detailed review of the companies’ regulatory filings, public statements, and competitors. Consulting a qualified investment adviser may be prudent. The information upon which this material is based and was obtained from sources believed to be reliable but has not been independently verified. Therefore, Massif Capital cannot guarantee its accuracy. Any opinions or estimates constitute Massif Capital’s best judgment as of the date of publication and are subject to change without notice. Massif Capital explicitly disclaims any liability that may arise from the use of this material; reliance upon information in this publication is at the sole discretion of the reader. Furthermore, under no circumstances is this publication an offer to sell or a solicitation to buy securities or services discussed herein.


Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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