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Polaris Infrastructure: Still 20% IRRs Over The Next 4-5 Years

Pelorus Capital profile picture
Pelorus Capital


  • Polaris Infrastructure continues its solid plan of developing the San Jacinto asset. The existing asset without new wells or a binary unit is worth ~$20 CAD.
  • 2 new wells yielding ~12MW, and a binary unit adding 6MW of capacity are worth a combined $10 CAD per share with relatively low risk and high visibility.
  • Room to increase the payout ratio after 2020, growth in dividends, and deleveraging should serve as catalysts to drive shares towards $30 in 2021, which would represent 21% IRRs.

(It's been roughly a year since I last wrote on Polaris Infrastructure (OTCPK:RAMPF), so I thought it was time for an update given the recent share price decline from ~$20 to $17.50 CAD.

Please note all figures are in USD unless otherwise noted. Also note that because the company uses USD in their financials, and pays their dividend in USD, but has a CAD listed share price, I calculate USD target prices and then convert them into CAD at a rate of $1.29/1.

Current Asset - San Jacinto "As Is"

Polaris' main asset remains the San Jacinto project in Nicaragua, which as of the end of Q4 2017 was producing roughly 57.8MW of power, however this was reduced by ~2MW by removal of one of the wells for injection service, where the company injects the well with increased fluid to build pressure so it can be used in production. If we adjust for this, the company generates ~60MW of power, net.

Based on the company's 2017 revenue, this production implies pricing of ~$1.07/watt, which is in line with where their PPA with built in inflation escalator of 3% per year would have them. For a brief reminder, Polaris has a 72Mw PPA with the largest Nicaraguan utility that is USD denominated and allows for 3% inflation per year.

My estimates for the existing production are laid out in my model below.

Note that in 2017, Polaris' tax rate was significantly elevated due to changes in tax codes. Most of this expense was non cash as Polaris has significant NOL's that exempt it from paying cash taxes. One will note that in the last 2 years 100% of Polaris' taxes have been non cash deferred taxes.

As per their Annual Report (page 25):

"The Company does not expect to utilize any

This article was written by

Pelorus Capital profile picture
I started as a value investor. I'm still a value investor, but I've learned that buying something at a discount to its intrinsic value means more than buying low multiple stocks. Return on invested capital matters, indeed, coupled with revenue growth it is perhaps the only thing that matters! So now, instead of buying low multiple stocks, I seek to do the following: Buy good companies. Don't overpay.Do nothing.

Analyst’s Disclosure: I am/we are long RAMPF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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