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

iA Capital Markets analyst Naji Baydoun updated clients on pure-play renewable power producer Innergex Renewable Energy (Innergex Renewable Energy Stock Quote, Charts, News, Analysts, Financials TSX:INE) on Thursday, where he reiterated a “Strong Buy” rating and $25.00 target price.

Longueuil, Quebec-headquartered Innergex, which has ownership interests in about 3.6 GW of operating hydro, wind and solar power generation capacity in Canada, the US, France and Chile, announced on Wednesday the acquisition of the remaining 37.75 per cent interest in its 138 MW Mountain Air wind portfolio. INE acquired the 62.25 per cent ownership stake of Mountain Air in 2020.

The company said the $64.4 million transaction will increase Innergex’s contracted profile in the US. Mountain Air consists of six operating wind farms in Idaho and all of the assets sell their output under long-term PPA agreements with regulated utility Idaho Power. Innegex said the full Mountain Air portfolio is expected to generate revenues of $40.3 million in 2023, with operating and general and administrative expenses expected at about $9.6 million. 

“This transaction not only represents a natural continuation of the path we embarked on when we first acquired a stake in the Mountain Air portfolio in 2020, but also an opportunity to generate additional accretive cash flows while increasing Innergex’s contracted wind profile in the United States,” said Michel Letellier, President and CEO of Innergex, in a press release.

Looking at the deal, Baydoun said he has slightly increased his estimates to reflect the higher-than-expected revenues and he is estimating $4-5 million of incremental free cash flow per year from the transaction. 

The addition puts his full-year 2022 proportionate EBITDA at $725 million, moving to $771 million in 2023 and $774 million in 2024. On free cash flow per share, Baydoun has INE going from $0.60 per share in 2021 to $0.79 in 2022, to $0.86 in 2023 and to $0.92 per share in 2024.

“We continue to like INE’s (1) high-quality, low-risk asset portfolio (~3.5GW 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 (~4.0 per cent yield, albeit with a >80 per cent payout over our forecast period), (4) potential upside from organic development (~7.5GW of prospects) and M&A, and (5) the support of the HQ strategic alliance,” Baydoun wrote.

At the time of publication, Baydoun’s $25.00 target price represented a projected one-year return including distribution of 50.3 per cent.