My recent blog on Wordpress dated May 9 discussed the fact that in this lacklustre market utilities are a good sector to invest in.Two months ago (Feb.23) Northland Power reported it's fourth quarter and annual performance;it was an excellent report.It showed annual adjusted EBITDA of $1.4 billion which is a NPI record. And net income increased from $270 million in 2021 to $955 million for 2022.Earnings per share for 2022 were $3.80 and the price/earnings ratio was a paltry 7.7.
Q1 Performance Only two and a half months later,on May 9, it reported it's first quarter of 2023 results that were only slightly different.Consequently this blog believes these results will not change NPI's annual net income forecast nor it's 2023 guidance..It is true that net income was only one third of net income in Q1 2022 but NPI management accounted for the difference caused by a price spike in Q1 of 2022. If this net income was truly unusual NPI management would have revised downwards it's guidance for net income and adjusted EBITDA forecasts. This blog believes that in some cases adjusted EBITDA may be a better indicator of performance than net income.Because the I (interest),T (taxes),(D) depreciation,and (A) amortization are variable.True NPI adjusted EBITDA fell about 15% from 2022 but that was a record -setting year.While net income was substantially lower than 2022 it still was only a $180 million reduction from a forecasted $1 billion for 2023.
Temporary not Permanent Problems
It is true that the Q1 report was not a good one with a sizeable reduction in net income.But adjusted EBITDA only showed a 15% reduction in comparison to a record setting performance in 2022.Shareholders seeing the report drove the share price down to $27 a share for a 15% drop. But it is possible that there was only a small drop in expected adjusted EBITDA and overzealous accounting that reduced net income by $180 million.
NPI has many large utility projects;some have weather problems in one quarter and then an excellent performance in the next.Over the period of a year NPI gets average or traditional weather performance This blog expects that the revenue problem will correct itself in Q2.And the sudden drop in price has made NPI the cheapest utility on the TSX index (an 8.0 P/E).Nevertheless this blog expects NPI to drift in a range from $29-$32 until the Q2 report comes out and net income shows dramatic improvement.
Dale Mcintyre M.S.Sc (econ) is a freelance writer that writes for Zacks Research. https://www.zacks.com/
