Innergex Renewable is a “Strong Buy,” says iA Capital

Renewable power producer Innergex Renewable Energy (Innergex Renewable Energy Stock Quote, Charts, News, Analysts, Financials TSX:INE) just announced a C-suite move but it’s one that shouldn’t be a worry to investors, according to analyst Naji Baydoun of iA Capital Markets. Baydoun gave an update to clients on the company on Thursday where he reiterated his “Strong Buy” recommendation and $25.00 target for Innergex, which at press time represented a projected one-year return including distribution of 38.8 per cent.

A pure-play renewable power producer, Innergex has ownership interests in over three GW of operating hydro, wind and solar in Canada, the US, France and Latin America. The Longueuil, Quebec-headquartered company announced on Thursday the departure of Jean-François Neault as CFO, with Jean Trudel, currently Chief Investment and Development Office, taking over as acting CFO effective immediately. Neault had been in the position since November, 2018, while Trudel has been with the company since 2002.

“Our strong and experienced leadership team will continue to focus on our goal in 2022 to consolidate and expand our current position by continuing to diversify our portfolio of assets through the development of our own projects and acquisitions, either in our traditional or in storage and green hydrogen technologies” said Michel Letellier, President and CEO, in a press release. “I am proud to welcome Jean Trudel in his new role. His deep understanding of our Corporation and our industry and his strong experience in key roles related to his new position will bring great value to Innergex.”

Innergex was down about two per cent in midday trading on Thursday, while year-to-date the stock is down the same two per cent. INE shot up over the couple of years leading up to early 2021 but a pullback across the board in renewables took its toll, taking it from a high of $32 down to now around $18-$20. 

Baydoun said although he doesn’t see the abrupt departure of Neault as having a material impact on Innergex’s long-term fundamentals, there could be some near-term noise in the shares as a result.

“We continue to see good value in INE’s shares, with significant upside potential as the Company executes on its growth strategy,” Baydoun wrote.

“We continue to like INE’s: (1) high-quality asset portfolio (>3GW net in operation, ~14-year weighted average contract term), (2) high single-digit FCF/share growth (~7-9 per cent/year, CAGR 2021-26E), (3) healthy dividend (~4 per cent yield, albeit with a >80 per cent payout over our forecast period), (4) potential upside from organic development (~7GW of prospects) and M&A, and (5) the support of the HQ strategic alliance,” he said.

Baydoun is calling for Innergex’s proportionate adjusted EBITDA going from $578 million for 2021 to $682 million for 2022 to $735 million for 2023 and $743 million in 2024. Innergex last released its earnings in February where revenue was up 21 per cent year-over-year for the fourth quarter 2021 to $202.4 million and EBITDA was up seven per cent to $163.0 million. For the 2021 year, revenue was up 13 per cent to $692.2 million and EBITDA was up 3 per cent to $578.5 million.