Polaris Renewable Energy Leads in Latin American Renewable Markets

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Written By Jackson Hartwell

Polaris Renewable Energy (TSX: PIF) operates as a key player in the Latin American renewable energy sector, boasting a robust asset portfolio and steady cash flows from long-term fixed-price contracts.

Company Overview

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Polaris Renewable Energy focuses on renewable energy projects across Latin America, with operations spanning the Dominican Republic, Ecuador, Nicaragua, Panama, and Peru.

The company’s current portfolio includes a geothermal plant, hydroelectric power plants, and photovoltaic solar projects. The largest contributor to its production is the San Jacinto Tizate Geothermal plant in Nicaragua, which accounts for 55% of power generation, followed by hydroelectric (35%) and solar (10%) projects.

Strong Asset Base and Cash Flow Predictability

Despite operating in regions with inherent geopolitical risks, Polaris benefits from higher potential returns in a faster-growing market compared to North America.

With annual grid growth rates of 3-6%, the company is well-positioned for expansion. Its contracts, averaging 13.6 years in duration with 98% fixed-price terms, provide stability and predictability in cash flows, akin to utility-like revenue streams.

Future Growth Through Investments and M&A

Polaris Renewable Energy is committed to organic growth through substantial investments, particularly in the Dominican Republic’s Canoa projects, expected to yield impressive Internal Rate of Returns (IRRs) exceeding 20%.

These initiatives, amounting to $65-70 million in capital expenditures, are projected to generate $14-15 million in additional EBITDA over the next three years.

The company also pursues growth through mergers and acquisitions (M&A), historically focusing on deals ranging from $15-$30 million. Notable acquisitions include Emerald Solar Energy SRL and Hidroelectric San Jose de Minas S.A. These strategic moves align with Polaris’s goal of achieving $100 million in EBITDA by 2028, leveraging its existing assets and operational capabilities.

Financial Outlook and Strategic Goals

Polaris aims to achieve $100 million in EBITDA by 2028, building upon its current $58.3 million EBITDA base. The company anticipates bridging the gap through a combination of organic growth initiatives and strategic mergers and acquisitions.

Despite a net debt of $176 million, with a Net Debt to EBITDA ratio of 3.0x, Polaris expects to de-lever organically to 2.4x by 2028, supported by robust free cash flow generation.

Valuation and Investment Potential

Currently trading at 6.0x EV/EBITDA, Polaris Renewable Energy offers significant upside potential compared to its peers in the renewable energy sector, which trade at an average of 15.7x EV/EBITDA. Analysts have set an average price target of $20.50, implying a substantial 58% upside from current levels, excluding the attractive 6.2% dividend yield.

Comparing Polaris to its peers listed below, there’s a clear valuation disconnect. At 6.0x EV/EBITDA, Polaris trades at a more than 50% discount to the average of 15.7x EV/EBITDA.

This undervaluation presents a compelling opportunity for investors seeking exposure to the growing Latin American renewable energy market.

High Dividend Player Worth a Close Look

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Polaris Renewable Energy stands out as a high-dividend payer with significant growth prospects in Latin America’s burgeoning renewable energy sector.

The company’s strategic investments, stable cash flows, and shareholder-friendly dividend policy position it favorably for long-term value creation.

Given its discounted valuation and potential for EBITDA expansion, Polaris Renewable Energy warrants a closer look as it continues to capitalize on regional energy demand and operational efficiencies.


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