Innergex Renewable Energy Inc (TSX: INE) is a renewable energy company established in Canada. The company mainly sells electricity generated by its hydroelectric, wind farm, and solar facilities to publicly owned utilities and other creditworthy counterparties through its hydropower, wind power, and solar power generation segments. Canada, France, the United States, and Chile are the company's geographic segments.

Key highlights

• Capacity Expansion: The Corporation has four geographic areas and three operating segments as of November 9, 2021.The company has a robust development pipeline that will allow it to take a few chances in the next years, with 10 projects totaling 669 MW installed capacity now in the advanced stages. The group plans to increase its capacity by 3,947 MW by 2023. Furthermore, it intends to boost capacity by 6,931 MW, bringing the company's net installed capacity to 10,878 MW in the medium future. The following charts shows a year-over-year rise in company Gross Installed Capacity, as well as a breakdown by geographic location.

• Resilient Growth in Revenues: Revenues were up 13% to CAD 184.6 million for the quarter ended September 30, 2021, compared to the same period last year and 8.21% quarter on quarter. Revenues in the hydroelectric power generation segment increased. The Company’s continuous growth in revenue and Adjusted EBITDA is supported by healthy demand and a substantial backlog.

• Delivering sustainable growth: In Q2 2021, the Company continued its momentum, with sales increasing by 15.4% to CAD 301.6 million on a year-over-year basis, and Adjusted EBITDA increasing by 4.8% to CAD 46.2 million from CAD 44.1 million in the previous corresponding quarter. The Company’s continuous growth in revenue and Adjusted EBITDA is supported by healthy demand and a substantial backlog.

• Strategic Acquisition: Innergex has engaged into a stock purchase agreement under which it will acquire the remaining 50% interest in Energa Llaima SpA ("Energa Llaima"), a renewable energy company established in Chile, effective July 9, 2021. Innergex already owns 50% of Energa Llaima. Innergex also announced the purchase of the 60 MW Curtis Palmer Run-of-River Hydroelectric Portfolio in New York.

• Good prospects for the future: Despite decreased financial forecasts for 2021, after a revision in November 2021, the targets set in February 2021 for 2025 are likely to remain largely unchanged. By 2025, the Adjusted EBITDA Proportionate is forecast to grow at a compound annual growth rate of roughly 9% to CAD 870 million (up from 10% in February 2021), and the Free Cash Flow per Share is expected to expand at a compound annual growth rate of approximately 12% to CAD 0.95. (12 percent projected in February 2021).
  

• Strong Margin Profile: The group posted higher profitability margin in Q3FY21, as compared to the industry median, which indicates strong operational efficiency and remains a major advantage for the company. Notably, INE reported its EBITDA margin and operating margin 66.70% and 29.80%, respectively, significantly higher than the industry median of 61% and 24.9%, respectively.

Financial overview of Q3 2021 (Expressed in 000 of CAD)

Source: Company

• The company’s revenue stood at CAD 184.56 million for the three months ended September 30, 2021, against CAD 162.65 million for the same period in 2020.

• Finance costs increased to CAD 66.519 million for the three months ended September 30, 2021 from CAD 60.122 million in the pcp, owing to the activation of the Griffin Trail wind plant and an increase in inflation compensation rates on Harrison Hydro real return bonds.

• Adjusted Net Earnings of CAD 11.9 million for the three months ended September 30, 2021, against CAD 13.4 million for the same period in 2020; and  CAD 3.0 million for the nine-month period ended September 30, 2021, compared with an Adjusted Net Earnings of CAD 9.3 million for the corresponding period in 2020.
  

Financial Status as on September 30^th, 2021 (Expressed in 000 of CAD)

• As of September 30, 2021, current assets totaled CAD 502.9 million, up CAD 50.5 million from December 31, 2020, owing mostly to a CAD 36.8 million rise in accounts receivable due to greater revenues from higher hydroelectric facility production. The growth is also related to the accounts receivables acquired as a result of business acquisitions.

• As of September 30, 2021, current liabilities totaled CAD 909.0 million, down CAD 127.7 million from December 31, 2020, owing primarily to a CAD 159.2 million reduction in the current portion of long-term loans and borrowings, which primarily relates to the resolution of breaches of the Mesgi'g Ugju's'n and Mountain Air respective credit agreements.

• The Corporation considers its current level of working capital to be sufficient to meet its needs, considering that a total amount of CAD 271.5 million that would otherwise be classified as long-term was reclassified to the current portion of long-term loans and borrowings
  

Risks associated with investment

The company's operations are subject to a variety of risks and uncertainties, including regulatory changes, quickly changing market dynamics, and commodity price volatility. In addition, interruptions in production, delays in growth initiatives, increased credit risk with counterparties, bad weather, and foreign currency volatility all have a direct impact on the company's financials. In addition, the company's debt is slightly higher on its balance sheet, which could be a source of concern in difficult times.

  Valuation Methodology (Illustrative): EV/ EBITDA

Stock recommendation

The company is in the energy generation business, which is usually considered as defensive in nature, regardless of economic cycle. It recently released its Q3 2021 financial results, revenue up 13% to CAD 184.6 million for the quarter ended September 30, 2021, compared to the same period last year. The firm has a healthy development pipeline. By 2023, the company plans to increase its capacity by 3,947 MW. Further, technical indicators point towards a healthy long consolidation and the price may resume its upside rally further. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the “INE” stock at the closing price of CAD 19.62 on November 10, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on November 10, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.