Topic: Energy Stocks

Expanding renewable-energy assets power Innergex’s 4.6% yield

Recent strategic acquisitions helped this alternative energy provider to a 13.4% jump in cash flow during the most-recent quarter.

The stock trades at just 8.7 times the company’s 2020 earnings forecast. Its shares now offer a 4.6% yield.

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INNERGEX RENEWABLE ENERGY (Toronto symbol INE; operates 37 hydroelectric plants, 25 wind farms and four solar power fields. Those operations are spread across the provinces of Quebec, Ontario and B.C., as well as Idaho, France and Chile. The company gets 40% of its power from hydro, 57% from wind and 3% from solar energy.

In February 2018, Innergex purchased Alterra for a total of $1.1 billion. That firm operated 10 projects (three hydro, three wind, two geothermal and two solar) in Canada, the U.S. and Iceland. In addition, it had both a U.S. wind plant and an Iceland hydro project under construction.

In May 2019, Innergex sold all its assets in Iceland acquired in the Alterra purchase. This included a 53.9% stake in two geothermal power projects. The buyer was Jarðvarmi SLHF and the sales price was $408.8 million.

Energy Stocks: Acquisition risks minimized with this strategy

In the quarter ended June 30, 2019, cash flow rose 13.4%, to $60.3 million, or $0.45 a share, from $53.1 million, or $0.40, a year earlier.

Growth by acquisition—particularly with a big deal like the Alterra purchase—adds risk. But Innergex cuts that risk by buying profitable utilities. It also ensures that its renewable energy projects sell their power under long-term government-guaranteed contracts.

Innergex trades at a low 8.7 times its forecast 2019 cash flow of $1.75 a share. It raised its dividend by 2.9% with the April 2019 payment. The stock now yields a high 4.6%.

Recommendation in Canadian Wealth Advisor: Innergex Renewable Energy is a buy.


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