Innergex Renewable Energy looks solid, says Industrial Alliance

In a research update to clients on July 15, Baydoun reasserted his “Buy” rating with the new price target of $22.00, up from $21.00, which at press time represented a projected 12-month return of 12.9 per cent.

Shares of Longueuil, Quebec’s Innergex shot up last week on news that the pure-play renewable power producer, which has ownership interests in about 2.6 GW of operating hydro, wind and solar power generation capacity in Canada, the US, France and Latin America, had purchased all Class B shares of a portfolio of six operating wind farms in Idaho under the name Mountain Air.

The US $56.8-million deal involves six 23 MW wind farms from Terna Energy SA for a total installed capacity of 138 MW. It represents the second of two previously announced acquisitions that will use proceeds from a $661-million private placement with Hydro-Quebec launched in February 2020. (All figures in Canadian dollars except where noted otherwise.)

Innergex President and CEO Michel Letellier said the deal will be immediately accretive to the company’s free cash flow per share.

“We are pleased to further expand our portfolio in the United States with fully contracted wind farms,” said Letellier. “Despite the current crisis, Innergex remains in an excellent position to pursue its growth, and we remain committed to identifying strategic acquisition opportunities on our own as well as through our Strategic Alliance with Hydro-Québec.”

Innergex expects the Mountain Air assets to generate about $28.7 million of EBITDA in 2021 and about $8.3 million of cash available for distribution.

Baydoun estimates the purchase to be about four to five per cent accretive to his long-term EBITDA and free cash flow projections. He said the deal leaves about $105 million for acquisitions through the Hydro Quebec proceeds, which is enough dry powder to pursue further development and acquisition opportunities.

“Overall, the growth outlook for INE remains strong, driven by: (1) the recently commissioned 250 MW Phoebe solar project in Texas (COD in Q4/19); (2) the 200 MW contracted Hillcrest solar project in Ohio (~US$192 million in financing secured in May 2020, COD in Q4/20); and (3) further development opportunities in the US and France, including 80 MW of solar/storage development projects in Hawaii,” Baydoun wrote.

“We continue to like INE’s: (1) high-quality, low-risk asset portfolio (~2.5 GW net in operation, ~15-year weighted average contract term); (2) FCF/share growth (~6-9 per cent/year, CAGR 2019-24E); (3) healthy dividend (~4 per cent yield, albeit with a >80 per cent payout over our forecast period); (4) significant potential longer-term upside from organic development (>7GW in Canada, France, the US, and Chile); and (5) the support of the Hydro-Québec strategic alliance,” Baydoun said.

Looking ahead, Baydoun thinks INE will generate fiscal 2020 EBITDA of $555 million and fiscal 2021 EBITDA of $576 million.