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 Third Quarter Ended 30 September 2021 (Q3FY21)

• The net loss stood at $0.67 per share in Q3FY21 versus a net loss of $0.61 per share from continuing operations in Q3FY21. The Q3FY21 reflects the seasonal nature of the gas utility's earnings, where most revenues are earned during the winter heating season in Q1 and Q4 each year.
• The company added ~12,000 natural gas meters in the previous 12 months with a growth rate of 1.5% as of 30 September 2021
• Invested over $200 million in utility systems in 9MFY21 for more excellent reliability and resiliency
• Received Washington rate case order acceptance a two-year adjustment that has blended forecasted pre-tax earnings benefit of up to $8 million
• Received acceptance in Oregon and Washington for new rates related to the Purchased Gas Adjustment (PGA) mechanism, which comprises anticipated gas costs for the upcoming winter heating season

Source: Company Reports, Analysis by Kalkine Group

Outlook

NW Natural has an option to invest up to $38 million in four separate RNG development projects that will access biogas derived from water treatment at Tyson Foods’ processing plants. Moreover, the management has strong trust in the long-term demand for renewable fuels from various customer classes. Therefore, the business indicates a significant opportunity to add earnings and cash flows in a fast-growing market segment. NW Natural Renewables' first project is with EDL with agreements to commit $50 million toward developing two production facilities. As per the agreements, NW Natural Renewables will invest in RNG infrastructure at two U.S. landfills. Construction for these projects is forecasted to begin in early 2022, with substantial completion and commissioning of the first facility expected in early 2023 and the second facility in spring 2023.

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 a 6-month and 1-year return of ~-14.19% and ~-11.14%, 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 factors above, we give a “Buy” recommendation on the stock at the closing market price of $45.72 per share, up 1.17% as of 10^th November 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.

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