Innergex Renewable Energy Inc Valuation – July 2018 $TSE:INE

Company Profile (excerpt from Reuters): Innergex Renewable Energy Inc is a Canada-based renewable power producer. The Company is a developer, owner and operator of renewable power-generating facilities with a focus on hydroelectric, wind power and solar photovoltaic (PV) projects. It operates through four segments: hydroelectric generation, wind power generation, solar power generation and site development. Through its hydroelectric, wind power and solar power generation segments, it sells electricity produced by its hydroelectric, wind farm and solar facilities to publicly owned utilities or other creditworthy counterparties. Through its site development segment, it analyzes sites and develops hydroelectric, wind and solar facilities up to the commissioning stage. Its portfolio of assets consists of interests in approximately three groups of power-generating project. It has over 30 facilities with a net installed capacity of over 710 megawatts. The Company owns interests in approximately 30 hydroelectric facilities.


Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-INE – July 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,791,711,025 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.81 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -167.57% Fail
6. Moderate PEmg Ratio PEmg < 20 583.29 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.57 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.81 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -64.21 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $0.02
MG Growth Estimate 15.00%
MG Value $0.90
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $0.34
MG Value based on 0% Growth $0.20
Market Implied Growth Rate 287.39%
Current Price $13.61
% of Intrinsic Value 1515.03%

Innergex Renewable Energy Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.24 in 2014 to an estimated $0.02 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 287.39% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Innergex Renewable Energy Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.66 per share, for a yield of 4.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 583.29, which was above the industry average of 22.48. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-34.25.

Innergex Renewable Energy Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$34.25
Graham Number $0.00
PEmg 583.29
Current Ratio 0.81
PB Ratio 1.57
Current Dividend $0.66
Dividend Yield 4.85%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $240,073,000
Total Current Liabilities $294,926,000
Long-Term Debt $3,522,017,000
Total Assets $5,533,528,000
Intangible Assets $958,711,000
Total Liabilities $4,463,566,000
Shares Outstanding (Diluted Average) 123,312,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate
Dec2017 $0.22
Dec2016 $0.28
Dec2015 -$0.37
Dec2014 -$0.63
Dec2013 $0.43
Dec2012 $0.03
Dec2011 -$0.59
Dec2010 -$1.13
Dec2009 $0.61
Dec2008 -$1.52
Dec2007 $1.64
Dec2006 $0.13

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.02
Dec2017 $0.02
Dec2016 -$0.07
Dec2015 -$0.24
Dec2014 -$0.24
Dec2013 -$0.08
Dec2012 -$0.39
Dec2011 -$0.47
Dec2010 -$0.29
Dec2009 $0.14
Dec2008 -$0.04
Dec2007 $0.58
Dec2006 $0.04

Recommended Reading:

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Innergex Renewable Energy Inc Valuation – Initial Coverage $TSE:INE

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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