Northwest Natural Holding Company

NWN Details

Northwest Natural Holding Company (NYSE: NWN) is a holding company and owns NW Natural, NW Natural Water Company, LLC (NWN Water), and other businesses and activities. It operates through its subsidiaries as a provider of natural gas services.

Results Performance for the Second Quarter Ended 30 June 2021 (Q2FY21)

• The net loss decreased to $0.02 per share in Q2FY21 from a net loss of $0.17 per share from continuing operations in Q2FY20.
• The results reflected new rates in Oregon for natural gas utility, customer growth, and lower financial impacts from COVID-19.
• In the last 12 months, around 12,000 natural gas meters were added, reflecting a growth rate of 1.6%.
• The company has generated $194.3 million in operating cash flows in H1FY21, a growth of $32.2 million compared to the PCP driven by the benefits of higher net income and lower net working capital requirements.

Consolidated Income Statement (Source: Company Reports) 

Key Update

• As per the release dated 15 October 2021, the company announced that it would release its Q3FY21 and year-to-date 2021 earnings release and conduct an analyst conference call and webcast to review results on 5 November 2021.
• On 14 October 2021, it has raised the quarterly dividend to 48.25 cents per share on its common stock that will be paid on 15 November 2021. Further, the company indicated a rise in annual dividend rate from $1.92 to $1.93 per share.

Outlook

The company strives to put renewables on its natural gas pipeline and invest in water and wastewater utilities. Further, it pursues Renewable Natural Gas (RNG) for the natural gas pipeline as per the landmark Oregon Senate Bill 98. In its Q2FY21 results press release, the company stated that NW Natural’s first RNG facility with BioCarbN and Tyson Foods' is likely to commence in September 2021, with the expected completion date commissioning is in early 2022. Meanwhile, NWN has reaffirmed its earnings guidance for 2021, which is likely to remain in the range of $2.40-$2.60 per share.

Key Risks

The group’s businesses are exposed to regulatory risk, including changes in the regulatory environment or an adverse outcome in regulatory proceedings that would hurt the financial condition and results of NW Holdings’ and NW Natural. Further, its NGD business is prone to increased competition that may negatively hurt NW Holdings’ or NW Natural’s results of operations.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period) 

Stock Recommendation

The company has delivered 6-month and 1-year returns of ~-16.79% and ~+3.46%, respectively. The stock is trading below the average of the 52-week high price of $56.75 and the 52-week low price of $41.71.

The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis), and the target price so arrived reflects a rise of low double-digit (in % terms). In addition, a slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the reaffirmation of the earnings guidance for 2021 and its sustained strides for RNG for the natural gas pipeline.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the closing market price of $46.92 per share, up by 0.64% as of 19^th October 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.