Monday, November 27, 2017

Innergex Renewable Energy

Sound bite for Twitter and StockTwits is: Dividend growth utility. On a lot of tests (except the P/S Ratio one, this stock is expensive. It has very high debt with Debt/Market Cap Ratio of 2.05. High debt loads can make a company a high risk. If there is any slip up or we high a recession, this could put the company in jeopardy of default on debt. See my spreadsheet on Innergex Renewable Energy.

I do not own this stock of Innergex Renewable Energy (TSX-INE, OTC-INGXF). I used to own this stock. I bought this stock in 2006 as it was highly rated and it was in the alternative energy field. In 2008 I sold Innergex as I did not think that it is a stock I want to hold as dividend increased less than the rate of inflation.

The Return of Equity may look good for 2016 because it is 10.5%. However, this is basically meaningless because the Equity part is a declining value. The other problem I see is that their long term debt is higher than the market cap. The Ratio is 2.09 currently.

This company used to be an income trust and has changed to a corporation. On March 29, 2010, Innergex Power Income Fund and Innergex Renewable Energy were amalgamated. Because of these events the dividends were decreased in 2010 by some 33%. In 2011 dividends were increase by 26% and then were flat for two years. In 2014 dividend increases were restarted and they were slightly above the rate of inflation.

One thing for sure is that they cannot afford their dividends. The Dividend Payout Ratio for 2016 was 227%. From the estimates for future EPS the DPR for 2017 will be 298%, going to 138% in 2018 and 126% in 2019. However, the further estimates go out the more unreliable there are.

Also the Debt/Market Cap Ratio is 1.72 for 2016 rising to 2.05 for the third quarter. This means that the long term debt has a value higher than what investor value the company at. This is bad situation.

The other debt ratios are also not good. The Liquidity Ratio for 2016 is 1.14 falling to 1.06 for the third quarter. The Debt Ratio is 1.16 for 2016 falling to 1.12 for the third quarter. For safety's sake you want these ratios to be at 1.50 or above. Leverage and Debt/Equity Ratios are very high at 7.43 and 6.43. These rise to 9.06 and 8.06 for the third quarter.

The Price/Earnings Ratios for 5 years, 10 years and historical are negative. This is because there were a number of years with earning losses. The current P/E Ratio is 65.50 based on a stock price of $14.41 and 23017 EPS estimate of $0.22. It does not improve much for 2018 where the P/E Ratio is 30.02 based on EPS of $0.48 and a stock price of $14.41. A P/E Ratio for a utility company is high.

I get a Graham Price of $3.82. The 10 year low, median and high median Price/Graham Price Ratios are 1.33, 1.44 and 1.58. These are high for a utility company. The current P/GP Ratio is 3.78. This stock price testing suggests that the stock price is relatively expensive.

The 10 year median Price/Book Value per Share Ratios is 2.05. The current P/B Ratio is 4.90. The current P/B Ratio is based on Book Value of $319.6M, BVPS of $2.94 and a stock price of $14.41. Gross Book Value of $471.7M less NCI of $20M and Preferred Shares of $131.1M leaves a Net Book Value of $319.6M. This stock price testing suggests that the stock price is relatively expensive.

The historical dividend yield is 6.68%. The dividend yield since the company was a corporation is 5.57%. The current dividend is 4.58% based on dividends of $0.66 and a stock price of $14.41. The current dividend is 31.4% or 17.8% below the historical or since 2010 dividend yield. This stock price testing suggests that the stock price is relatively expensive.

The 10 year median Price/Sales (Revenue) Ratio is 4.95. The current P/S Ratio is 3.80, a value some 23% lower than the 10 year median ratio. The current P/S Ratio is based on 2017 Revenue estimate of $412M, Revenue per Share of 3.79 and a stock price of $14.41. This stock price testing suggests that the stock price is relatively cheap.

The 412M Revenue for 2017 is an increase of 40.7%. However, the 12 month revenue to the end of the third quarter is $365.6M a 25% increase over the Revenue for 2016. So the Revenue estimate could well be accurate. Note that this company has just bought rival Alterra Power Corp. See news of this on BNN.

When I look at analysts' recommendations I find Strong Buy (1), Buy (3) and Hold (3). The consensus would be a Buy recommendation. The 12 month stock price is $16.93. This implies a total return of 22.07% with 17.49% from capital gains and 4.58% from dividends. This is based on a stock price of $14.41.

A Melville Contributor on Melville Review says that Relative Strength Index shows that the stock is overbought. Lenox Staff on Lenox Ledger says that the Piotroski F-Score is 5 in which 1 is weak or 9 is strong financial strength. Blake Harford on Simply Wall Street thinks that the company is currently overvalued. There is only one entry this year on Stock Chase. The Edgehill Partners give it a sell because of high valuation and hefty debt.

Innergex is involved in Canada's renewable energy industry. The Company develops, owns and operates facilities located in North America, leveraging run-of-river hydroelectric power generating facilities, wind farms and photovoltaic solar parks. Its web site is here Innergex Renewable Energy.

The last stock I wrote about was about was PFB Corp. (TSX-PFB, OTC-PFBOF)... learn more. The next stock I will write about will be Crescent Point Energy Corp. (TSX-CPG, NYSE-CPG)... learn more on Wednesday, November 29, 2017 around 5 pm. Tomorrow on my other blog I will write about Trusted an Advisor... learn more on Thursday, November 28, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

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