Innergex is undervalued, National Bank says

Ahead of the company’s Q1 results, due on May 8, National Bank Financial analyst Rupert Merer remains bullish on Innergex Renewable (Innergex Renewable Stock Quote, Chart, News, Analysts, Financials TSX:INE).

As reported in The Globe and Mail, Merer noted that the stock has not performed well since cutting its dividend in half.

“Prior to baking in a dividend cut, INE was trading between $9.00-9.50 per share,” Merer wrote. “Since announcing a 50-per-cent dividend cut to $0.36 per share (payout target of 30-50 per cent of FCF), INE has not rebounded. We believe the company should have $75-million per year additional capital for organic growth and share buybacks and an ability to grow by more than 200 MW/year (net interest). We believe investors in this sector prefer growth to yield and could ultimately reward the company when results return to growth (with normalized production and near-term organic developments). INE should find ample organic growth opportunities at home in Canada as multiple RFPs are being issued across the country in response to growing power demand. Canadian companies with strong community and First Nations relationships and operating leverage at home face less competition.”

Merer April 9 reiterated his “Outperform” rating and one-year price target of $15.00 on INE.

““We believe INE should add more than $150-moillion in EBITDA by ‘25 vs ‘23 (more than 20-per-cent growth) with organic growth that is already financed (including the 330 MW Boswell Springs project) and better weather,” the analyst added. “The company trades at a cash flow yield of 10.2 per cent on 2023E, a discount to peers. The company is budgeting up to $40-million for development activities ($27-million in ‘23), where it should grow its 10 GW pipeline and advance existing pipeline projects (more than 450 MW in the development pipeline).”