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According to the firm, the downgrade is primarily due to its more conservative valuation of unregulated renewable generation assets. Duke Energy (NYSE:DUK) recently monetized its commercial renewables portfolio at a valuation of approximately 9x EBITDA. The bank anticipates that Allete’s wind portfolio will be similarly undervalued by the market.
It adjusted Allete’s cost of capital to 9.9% from 6.0%, reflecting the current higher interest rate environment and the increased premium demanded by investors. “On an EV/EBITDA basis this shifts our valuation to 9.0x, in line with Duke’s transaction” added BofA.
