Boswell Springs And Hale Kuawehi Will Secure Future Success

Key Takeaways

• Strong project pipeline and PPAs in Canada enhance future revenue predictability and EBITDA growth, leveraging First Nations relations.
  
• Strategic financing and asset sell-downs provide growth support without shareholder dilution, positively impacting earnings.
  
• Fluctuating production, high debt, geopolitical risks, and reliance on key projects may impact revenue consistency, operational flexibility, and financial projections.

Catalysts

Operates as an independent renewable power producer in Canada, the United States, France, and Chile.

• Innergex's recent project completions, like the Boswell Springs wind farm, have started contributing to new revenue streams through long-term power purchase agreements (PPAs), which should boost future revenues.
  
• The company has a strong pipeline of projects, with 6,200 megawatts expected by 2030-2031, providing significant potential for future revenue growth due to high-quality, long-term PPAs.
  
• Innergex's strategic focus on Canada, where it has longstanding relationships with First Nations, positions it to win more PPAs, enhancing future revenue predictability and potential EBITDA growth.
  
• Their ability to secure financing and sell down assets, such as the $450 million project finance and $250 million sell-down in Texas, provides financial flexibility to support future growth initiatives without diluting shareholder value, potentially impacting earnings positively.
  
• The expected commissioning of projects like Hale Kuawehi in 2025, and ongoing efforts to increase asset performance and availability, are set to enhance Innergex's operational efficiency, supporting growth in net margins and free cash flow.

Innergex Renewable Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Innergex Renewable Energy's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.0% today to 3.8% in 3 years time.
• Analysts expect earnings to reach CA$51.0 million (and earnings per share of CA$0.14) by about March 2028, up from CA$10.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 64.3x on those 2028 earnings, down from 268.2x today. This future PE is greater than the current PE for the CA Renewable Energy industry at 19.6x.
• Analysts expect the number of shares outstanding to decline by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.92%, as per the Simply Wall St company report.

Innergex Renewable Energy Future Earnings Per Share Growth

Risks

• The fluctuation in production levels due to weather-related factors, such as below-average wind in certain regions and lower water flows, could potentially impact future revenue consistency and margins.
  
• High debt levels of approximately $6.6 billion might restrict operational flexibility and hamper future earnings if interest rates rise or if refinancing terms become less favorable.
  
• Exposure to geopolitical risks and currency fluctuations, particularly when sourcing equipment internationally and dealing with tariffs, could increase expenses and negatively impact net margins.
  
• The need to maintain competitive capital allocation and manage jurisdictional risks amid rising costs of capital could impact the company's ability to sustain growth and achieve revenue targets.
  
• The reliance on a few key projects like Palomino and Curtis Palmer for strategic plans under uncertain macroeconomic conditions might affect the company's financial projections if these projects face delays or shifts in market dynamics.

Valuation

• The analysts have a consensus price target of CA$12.556 for Innergex Renewable Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$13.75, and the most bearish reporting a price target of just CA$9.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$1.3 billion, earnings will come to CA$51.0 million, and it would be trading on a PE ratio of 64.3x, assuming you use a discount rate of 8.9%.
• Given the current share price of CA$13.55, the analyst price target of CA$12.56 is 7.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.