Innergex Renewable Energy Inc.

Innergex Renewable Energy Inc. (TSX: INE) is a leading renewable power producer. Innergex operates a large portfolio of hydro, solar, and wind energy facilities in Canada, the United States, Chile, and France. The company has interests in 68 operating facilities (including 37 hydro facilities, 26 wind farms, and Six solar farms) with a net installed capacity of 2,656 MW.

Recent Updates:

• The Group made a successful acquisition of Salvador and 11-year demand-based power purchase agreements from Etrion Chile SpA with a total power generation of 54.6 GWh/year at a price consideration of US$46.6 million (~CAN 65.6 million) and USD 19.5 million (~CAN 27.4 million), respectively.

• Due to the on ongoing COVID-19 pandemic and governmental restrictions, BC Hydro has rejected electricity purchase agreements (EPA) from INE for its six units. BC Hydro confirmed that the above step was taken due to the persisting lower electricity demand and related challenges to the safe operation of its hydroelectric system. The cancellation of purchase is likely to result in a less than CAD 20 million revenue loss for INE.

• On May 07, the company confirmed fundraising of CAD 270.9 million from CIT Power and Energy group and other esteemed investors for construction activities related to its 200 MW Hillcrest solar photovoltaic project located in Brown County, Ohio. The project is expected to produce a long-term average of 413.3 GWh and CAD 15.1 million of adjusted EBITDA on average for the first five years of operation.

Q1FY20 Financial Highlights: INE declared its first-quarter results, wherein the company reported improved revenue of CAD 132.11 million, as compared to CAD 126.42 million in pcp. The higher revenue was aided by higher production of 1,679,598 MWh, against 1,308,505 MWh in Q1FY19. Adjusted EBITDA fell marginally at CAD 90.42 million from CAD 93.24 million in the previous corresponding quarter. The company announced a quarterly dividend of CAD 0.18 per common share, payable on July 15, 2020.

Q1FY20 Financial Highlights (Source: Company Reports)

Valuation Methodology: EV/ EBITDA Based Relative Valuation (Illustrative)

EV/ Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of INE remained resilient and reported a stupendous return of ~36% in the last one year. The service of Innergex is considered as an ‘essential services’ and is immune to the economic cycle. The company reported higher revenues from the France wind farm and improved income from British Columbia underpinned positive net favorable impact of higher production over lower average selling prices at some facilities. However, the cancellation of EPA by BC Hydro would have a short-term impact on the cash flows of the company. The group is offering a dividend yield of 3.84%, which looks attractive, considering the current interest rate scenario. The company continues to advance strategic investments, which could boost growth further. We have valued the stock using EV/EBITDA based relative valuation with a target multiple of 15x. We have arrived at a target price which implies low double-digit upside in percentage terms. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 18.94 on May 29, 2020.

INE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Superior Plus Corp.

Superior Plus Corp. (TSX: SPB) is a Canada based Company which operates with two products line, namely Propane Distribution and Specialty Chemicals across U.S. and Canada region.

To weather the current pandemic, the Group has adopted cost-savings initiatives to pump liquidity to the business. The initiatives include a reduction in capital expenditure by CAD 30 million, followed by a cut-down of operational expenses by CAD 30 million. The Group announced a monthly dividend of CAD 0.06 per common share, payable on June 15, 2020. 

Outlook: For FY20, the Group expects its Adjusted EBITDA within the range of CAD 475 million to CAD 515 million.

Q1FY20 Financial Highlights: SPB declared its first-quarter results, wherein the Company reported a lower revenue of CAD 840.2 million, as compared to CAD 1036 million in pcp. The decline was due to the significantly warmer weather experienced across the Eastern U.S. and Canada, followed by a modest impact from the COVID-19 pandemic coupled with a low oil price. Gross profit came at CAD 399.2 million against CAD 428.3 million in Q1FY19. Net earnings for the period was CAD 11.4 million, significantly lower than CAD 156.6 million in pcp. The decline was primarily attributable to a loss on derivatives and foreign currency translation of borrowings of CAD 116 million. Cash and cash equivalent stood at CAD 34.3 million, while total assets were reported at CAD 3,774.9 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: P/ CF Based Relative Valuation (Illustrative)

P/CF Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of SPB corrected ~23% during the last one year. The company’s offerings have been categorized under essential by all the provinces in which it operates. The group has not witnessed any disruption to its operating facilities owing to COVID-19. The group expect a modest impact on its business in the near term. The group has taken measures to preserve liquidity and reduced its capital expenditure. The group is targeting to reduce its operating expenses which is likely to cushion the bottom line. The group is offering a dividend yield of 7.6%, which is lucrative, considering the current interest rate environment. The investor should note that the group has not cut its dividend. The stock is trading above its 20-days and 50-days simple moving average (SMA) of CAD 9.4 and CAD 8.74, indicating a short-term bullish pattern. We have valued the stock using P/CF multiple based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered AltaGas Ltd (TSX: ALA), Nutrien Ltd (TSX: NTR) and Olin Corp (NYSE: OLN), etc., as a peer group. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 9.45 on May 29, 2020.

SPB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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