Innergex Renewable has a 35 per cent upside, IA Securities says

With its recent solar project acquisition, Innergex Renewable Energy (TSX:INE) is expanding its footprint in Texas, says analyst Jeremy Rosenfield with Industrial Alliance Securities, who calls INE one of the most attractive investments in the renewable power sector.

On Monday, Longueuil, Quebec-based Innergex announced the acquisition and financial close of a 250MWAC/315MWDC greenfield solar project in Winkler County, West Texas, that comes with a 12-year power purchase agreement with Shell Energy North America, with the project expected to begin commercial operations during the third quarter of 2019.

CEO Michel Letellier says that the completion of the project, INE’s largest solar project to date, will demonstrate his company’s commitment to growing its portfolio of assets.

”With this acquisition, we are in a good position to provide peak renewable power to the ERCOT market, complementing wind energy production and diversifying our footprint in the state,” says Letellier in a statement. “This acquisition brings us closer to exceeding our goal of achieving net 2,000 MW by 2020 and we intend to continue pursuing development and acquisition opportunities of high-quality renewable energy assets to further generate value for our stakeholders.”

As Rosenfield reports, the company expects high single-digit/low double-digit equity returns from the project, which the analyst says is in an attractive market.

“INE’s long-term growth story remains among the most attractive investment options in the renewable power sector at this time,” says Rosenfield in a client update on Tuesday. “The Company continues to execute on recently-acquired development projects from the Alterra power acquisition, and the [Energia Llaima] Chilean renewable partnership.”

“We continue to like INE for its (1) low-risk long-term growth profile, (2) the longevity of its high-quality hydro portfolio, (3) strong expected FCF/share growth (7-9 per cent/year through 2022), (4) healthy dividend characteristics (~5 per cent yield, <80 per cent payout), and (5) longer-term potential upside from organic development prospects (>8GW in Canada, France, the US, Iceland and Latin America),” he says.

The analyst predicts INE’s EBITDA in F2018 to be $404.5 million and in F2019 to be $400.0 million. In his update, Rosenfield reiterated his “Strong Buy” rating and $18.00 target price, representing a projected 12-month return of 35.3 per cent at the time of publication.