Sprott Power Corp. All Things Sprott

Sprott School of Business

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Nov. 26

because Sprott is always ahead of the curve he is worth watching

Sprott Power Corp. 
SPZ : TSX : C$1.06
BUY Target: C$1.45

Company Description

Sprott Power Corp. owns, operates, and develops wind farms in Canada. The company currently has net 95 MW in operation. Sprott Power’s development portfolio includes 47 MW of projects which have been awarded PPAs and over 700 MW of earlier stage projects. The company is aiming to have 500 MW in operation by 2015.
All amounts in C$ unless otherwise noted.

Investment recommendation
We are reiterating our BUY rating on Sprott Power following the close of its acquisition of Shear Wind (SWX-V | not rated) and reporting of third
quarter results. We take a positive view towards the Shear Wind transaction as it increases Sprott Power’s operating capacity, we estimate is accretive to DCFPS, appears attractively priced, and has the potential to drive substantial dividend increases.

The acquisition expands Sprott Power’s fully contracted operating capacity by an impressive 51% or 31.2 MW. We expect the addition of Shear Wind to be accretive to DCFPS by 1.2¢/share, representing a 17% improvement. The acquisition has an enterprise value of ~$79 million, which equates to ~$2.5 million per operating MW, ~11% below the precedent transaction average of ~$2.8 million/MW.

Bottom line, we believe the transaction will lead to an improving payout ratio and the ability to increase the dividend materially through 2015. We are reiterating our BUY recommendation and increasing our 12-month target price to C$1.45 from C$1.30. Our revised target price implies a potential return of ~42%, including the dividend yield of 5.0%.
Investment highlights
Acquisition of 31.2 MW of operating wind capacity (63.7 MW gross)
 $79 million enterprise value o $33 million, plus $51 million of assumed debt offset with $5 million of cash
 Expected DCFPS accretion of 1.2¢/share (17% increase)

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