Innergex is a “Strong Buy,” says iA Capital

Quebec-based renewable power producer Innergex Renewable Energy (Innergex Renewable Energy Stock Quote, Charts, News, Analysts, Financials TSX:INE) reported strong quarterly numbers, according to iA Capital Markets analyst Naji Baydoun, who reported on the company on Tuesday and reiterated a “Strong Buy” rating.

A pure-play renewable power generator, Innergex has hydro, wind and solar operations in Canada, the US, France and Chile. The company has 84 operating facilities combining for about 3.6 MW of installed capacity. Innergex’s third quarter 2022 featured adjusted proportionate EBITDA of $215 million, which came in better than both the consensus call at $198 million and iA Capital’s $194 million.

The company has made a number of moves of late, completing in July the commissioning of a 9 MWh battery storage system in France, the refinancing in August of debt on its wholly owned assets in Chile, announcing a 30-year power purchase agreement for a wind project in Wyoming and an agreement to acquire in September the remaining 30.45 per cent minority interest in its wind portfolio of 16 assets in France.

“Our initiatives concluded throughout the third quarter allowed us to unlock additional value for our portfolio of assets both in Chile and France and further our progress in the United States. All of our recent acquisitions and growth initiatives combined contributed significantly to our 40 per cent growth in revenues and 48 per cent increase in Adjusted EBITDA recorded in the quarter as well as to sustainably improving our payout ratio,” said Michel Letellier, President and CEO, in a November 7 press release.

Baydoun said Innergex’s growth puts it on track to beat its own 2022 financial guidance, while its consolidation moves in France have allowed it to simplify its overall structure and allowed it to strategically pursue optimization and growth initiatives to capitalize on the current power market dynamics in that country.

“Although INE noted minor delays to ongoing projects, the overall growth outlook remains strong; with several initiatives underway and additional development updates on the horizon, we expect INE to continue executing on attractive investment opportunities which should contribute to its sustainable growth profile,” Baydoun wrote.

With his “Strong Buy” rating, Baydoun has maintained a target price on Innergex of $25.00 per share, which at the time of publication represented a projected one-year return of 72.4 per cent.

“We continue to like INE’s: (1) high-quality, low-risk asset portfolio (~3.6GW net in operations, ~14-year weighted average contract term); (2) solid FCF/share growth (~7-9 per cent/year, CAGR 2021-26E); (3) healthy dividend (~5 per cent yield, with a rapidly declining payout ratio); (4) potential upside from organic development (~8.5GW of prospects) and M&A; and (5) the support of the HQ strategic alliance,” Baydoun said.