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Innergex is a Strong Buy, says iA Capital

iA Capital Markets analyst Naji Baydoun likes where the prevailing winds are blowing for renewable power producer Innergex Renewable Energy (Innergex Renewable Energy Stock Quote, Charts, News, Analysts, Financials TSX:INE). In a Thursday report, Baydoun reviewed Innergex’s latest M&A moves and reiterated a “Strong Buy” rating on the stock. Baydoun said in addition to paying a healthy dividend Innergex gives investors access to a high-quality, low-risk asset portfolio. 

Quebec-based pure-play renewable power company Innergex has ownership interests in about 3.5 GW of operating hydro, wind and solar power generation capacity, with assets in Canada, the United States, France and Latin America. The company announced on Wednesday an agreement to consolidate its ownership interests in a portfolio of operating wind assets in France, acquiring the remaining 30.45 per cent minority interest it didn’t already own in the assets, a portfolio of 16 distinct wind facilities. Innergex said it would be paying $96.4 million for the remaining interest and has pegged the consolidated revenue generation in 2023 of the 16 assets at $100.0 million, with operating, general and administrative expenses at $24.5 million. 

“This transaction is part of a global strategy to capitalize on rising energy prices and growing demand in the current energy environment in France,” said Michel Letellier, President and CEO of Innergex, in a press release. “By increasing the scale of our business and developing a stronger presence in France, it paves the way for future growth and value creation in the country.”

Innergex, whose share price dropped nine per cent in trading on Thursday, has been building capacity at a fast pace of late. Over its latest reported quarter, the company completed the acquisition of three wind farms in Chile, commissioned a battery energy storage project in France and started construction on a battery energy storage/solar project in Chile. Earlier this year, Innergex also signed new power purchase agreements for about 30 MW of capacity in France. More recently, the company announced a strategic alliance with Hydro Quebec to develop renewable power resources, with Hydro Quebec committing $500 million to the strategic alliance as well as a $661 million private placement in Innergex.

Commenting on Innergex’s moves, Baydoun said that given the current power price dynamics in Europe and especially the volatile and elevated prices in France, Innergex is positioning itself to capitalize on further growth initiatives in the country. He said the new consolidation agreement could add a low single-digit bump to the company’s free cash flow per share estimates, roughly about $0.02-0.04/share and representing a two to four per cent pickup on his current long-term forecasts.

“From a relative valuation perspective, based on the purchase price and our calculations, we estimate that the deal implied valuation multiples are favourable when compared to INE’s own trading multiples,” Baydoun wrote in his report.

Innergex saw its share price rise sharply in 2019 and 2020 as interest in the renewable energy space intensified, but the bottom fell out of the space in early 2021, and with it INE started dropping from a high of $32 to the $16-20 range where it’s been trading for much of 2022. That’s still roughly a few dollars per share higher than where the stock had been pre-2019 at around $13 per share.

But Baydoun sees more upside over the next 12 months and has reiterated a $25.00 target price, which at the time of his report’s publication represented a projected return plus distribution of 46.6 per cent. Innergex’s dividend and yield are currently at $0.72 per share and 4.1 per cent, respectively.

“We continue to like INE’s: (1) high-quality, low-risk asset portfolio (~3.5 GW net in operations, ~14-year weighted average contract term); (2) solid FCF/share growth (~7-9 per cent/year, CAGR 2021- 26); (3) healthy dividend (~4.0 per cent yield, albeit with a >80 per cent payout over our forecast period), (4) potential upside from organic development (~7.5 GW of prospects) and M&A, and (5) the support of the Hydro Quebec strategic alliance,” Baydoun wrote.

Innergex last reported its financials in early August where the company’s Q2 revenues climbed 22 per cent year-over-year to $219.7 million. Adjusted EBITDA rose 25 per cent to $152.9 million and the company posted a quarterly net loss attributable to owners of $0.13 per share compared to net earnings of $0.23 per share a year ago. The company’s power production over the quarter was 2.9 MWh compared to 2.4 MWh for the same period a year earlier.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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