Polaris Renewable Energy: Attractive FCF Yield with Upside Optionality

Shawn Kravetz of Esplanade Capital presented his investment thesis on Polaris Renewable Energy (Canada: PIF) at Wide-Moat Investing Summit 2025.

Thesis summary:

Polaris Renewable Energy is a Canadian renewable energy company focused on owning, operating, developing, and acquiring projects primarily in Latin America and the Caribbean. Headquartered in Toronto, Polaris recently had a market capitalization of C$253 million (US$185 million) and net debt of around US$127 million. Despite a track record characterized by modest overpromising and occasional underdelivery, the business remains compelling due to its substantial and durable cash generation. Polaris yields a notable ~7% dividend, supported by strong free cash flow with a payout ratio of ~45%.

Polaris’s valuation appears deeply discounted compared to its peers, trading at just 5.4x estimated 2025 EV/EBITDA. In contrast, comparable renewable energy companies like Boralex, Brookfield Renewable, Clearway Energy, Innergex, and Northland Power trade at average multiples of ~12x EV/EBITDA. Polaris’s discounted valuation is noteworthy, considering its robust cash generation, with a free cash flow yield recently estimated at 15.7% after deducting debt repayments.

Operationally, Polaris’s results have shown relative stability with occasional step-changes, reflected in adjusted EBITDA progressing from US$43.8 million in 2021 to a projected US$58 million in 2025. While its stock price has experienced significant volatility, it has essentially traded sideways over the past five years. This stagnant stock performance masks the underlying durability of Polaris’s cash flows and its potential growth catalysts.

Looking ahead, Polaris has multiple pathways to unlock shareholder value. A significant potential catalyst is its Puerto Rico battery storage project, representing up to US$50 million in net investment with expected EBITDA returns near 30% annually for twenty years, translating into an unlevered internal rate of return exceeding 20%. Additionally, organic growth initiatives or selective acquisitions could further enhance its value proposition. Should the valuation gap persist, strategic alternatives including a potential sale could come into play, further underpinning the attractiveness of the stock at recent valuation levels.

In sum, Polaris Renewable Energy offers investors a stable business model with meaningful optionality. Its strong cash flow, deeply discounted valuation, and clear strategic pathways position the company as an attractive opportunity, presenting multiple routes to potential upside over the next two years.

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About the instructor:

Shawn Kravetz is President and Chief Investment Officer of Esplanade Capital LLC, an investment management company he founded in 1999. Esplanade Capital LLC manages capital for a small number of like-minded families, private investors, and institutions.

Prior to founding Esplanade, Shawn was a corporate executive and strategic advisor, including: Principal at The Parthenon Group, a leading strategy consulting boutique, where he advised chief executives on corporate strategy; Director of Strategic Planning and Corporate Development at The CML Group (NYSE traded), where he oversaw activities at subsidiaries including NordicTrack, The Nature Company, and Smith & Hawken; Consultant with Monitor Company, a leading strategy consulting firm.

Shawn received an MBA with High Distinction from Harvard Business School in 1995, where he was awarded: The Thomas M. and Edna E. Wolfe Award; The Henry Ford II Scholar Award; and a Baker Scholarship. Shawn received an A.B. in Economics from Harvard University, magna cum laude, in 1991.

Shawn has been active in his community, having served as: Steering Committee Vice Chairman of The Museum of Fine Arts Council at The Museum of Fine Arts Boston; Member of the Steering Committee of The Vilna Center for Jewish Heritage; and Treasurer of the PTO for the Frances Jacobsen Early Education Center.

Shawn currently serves as Trustee and Chairman of the Investment Committee at Temple Israel, Boston.

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