I do not own this stock of Innergex Renewable Energy (TSX-INE, OTC-INGXF). In 2006 I bought Innergex Power on a buy rating and favorable report from TD although it has only been going from 2003. 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.
When I was updating my spreadsheet, I noticed a very week Balance Sheet. The Liquidity Ratio is 0.44 and if you add in Cash Flow after dividends you only get to 0.54. If this is below 1.00, it means that current assets cannot cover the current liabilities. The Debt Ratio is just 1.18. Both of these you want to be at 1.50 or higher. The Long Term Debt has been higher than the Market Cap of this stock for some time, and since I have looked at this since 2014. The Debt to Cash Flow (In Years) is 17 and what you want is a number closer to 3. The Assets/Current Liabilities Ratio is good at 6.90.
Last year analysts thought dividends would be raised for 2021 and 2022 to $0.74 and $0.75. This year, analysts do not see any dividend increases in the near future. You need to make a profit in order to pay and raise dividends. However, this company has only made a profit in 4 of the past 10 years. I have 18 years of data and they made a profit in 9 of those 18 years. Currently one of the biggest expenses is financing.
The dividend yields are moderate with dividend growth stopping. The current dividend yield is moderate (2% to 4% ranges) at 3.70%. The 5 year median dividend yields are moderate at 4.60%. The 10 year and historical median dividend yields are good (5% to 6% ranges) at 5.62% and 5.96%. This company used to be an income trust and changed to a corporation in 2010. Income Trust companies paid much higher dividends than corporations. The dividend increases are low (below 8% per year) at 3% per year over the past 5 years. However, there was no dividend increase in 2021 and analysts do not expect any in the near future.
The Dividend Payout Ratios (DPR) need improving. The DPR for EPS for 2020 is non-calculable because of the 2020 earning loss. The 5 year coverage was 1467% and so much too high. The company is not expected to have positive earnings until 2022, and then the DPR for EPS is expected to be 180%. The DPR for Free Cash Flow is negative in 2020 and therefore non-calculable. The 5 year coverage is also non-calculable for the same reason. The DPR for FCF is expected to be 177% in 2021 and then falling to 90% in 2022.
Debt Ratios need improving. The Long Term Debt/Market Cap Ratio for 2020 is 0.85. However, it has been above 1.00 in the near past and is currently at 1.29 and much too high. The debt increased in 2021 by over 8%. The Debt Ratio is too low at 1.18. These last two ratios I like to be at 1.50 or higher. The Leverage and Debt/Equity Ratios for 2020 are too high at 6.68 and 5.68. I prefer them to be under 3.00 and under 2.00.
The Liquidity Ratio for 2020 is 0.44. If you add in cash flow after dividends, it is only 0.54. If you add back in the current portion of the long term debt it is 1.72. That is fine, but you have to carefully check that debt can be rolled over. The problem is that a company can quickly get into debt problems when the economy turns into a recession. It is not a good idea to depend on debt rolling over the have a decent Liquidity Ratio.
The Total Return per year is shown below for years of 5 to 17 to the end of 2020. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2015 | 5 | 3.06% | 23.61% | 19.29% | 4.32% |
| 2010 | 10 | 4.51% | 14.89% | 10.67% | 4.22% |
| 2005 | 15 | 0.67% | 12.35% | 7.66% | 4.68% |
| 2003 | 17 | 0.80% | 12.30% | 7.29% | 5.01% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 36.32, 46.20 and 56.07. The corresponding 10 year ratios are all negative and therefore unusable. The corresponding historical ratios are all negative and therefore unusable. The current P/E Ratio is also negative and so unusable.
The P/E Ratio for 2022 is 48.68 based on a stock price of $19.47 and EPS estimate for 2022 is $0.40. This ratio is between median and high 5 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median. The thing with P/E Ratios, if a company is doing badly in EPS, the stock price generally only goes down only so much. A low EPS for a company can result in a high P/E Ratio. This is probably the case here.
I calculate a Graham Price of $5.79, but this is a guess. The 10 year low, median, and high median Price/Graham Price Ratios are 2.27, 2.71 and 3.08. The current P/GP Ratio is 3.36 based on a stock price of $19.47. The current ratio is above the high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive. Unusually low EPS does affect the Graham Price also. This is probably also not a good test.
I get a 10 year median Price/Book Value per Share Ratio of 3.54. The current P/B Ratio is 5.23 based on a Book Value of $650M, Book Value per Share of $3.72 and a stock price of $19.47. The current ratio is 48% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. The P/B Ratio are quite high. This is because of low EPS and a Book Value that is only slightly growing over the past 5 year and is down over the past 10 years.
I get a 10 year median Price/Cash Flow per Share Ratio of 13.67. The current P/CF Ratio is 14.01 based on Cash Flow per Share estimate for 2021 of $1.39, Cash Flow of $242.7M and a stock price of $16.47. The current ratio is 2.5% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an historical median dividend yield of 5.96%. The current dividend yield is 3.70% based on a stock price of $19.47 and dividends of $0.72. The current dividend yield is 38% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. This company used to be an income trust and so had higher dividend yields than corporations.
I get a 10 year median dividend yield of 5.32%. The current dividend yield is 3.70% based on a stock price of $19.47 and dividends of $0.72. The current dividend yield is 31% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. The dividend yields have only slightly come down from the high income trust yields.
The 10 year median Price/Sales (Revenue) Ratio is 4.63. The current P/S Ratio is 4.60 based on Revenue estimate for 2021 of $739M, Revenue per Share of $4.23 and a stock price of $19.47. The current ratio is 8.8% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is that the stock price is probably reasonable based on the P/S Ratio test. Most of the test are invalid for various reasons. The only other one that seems valid is the P/CF Ratio test and that also says the stock price is reasonable, but above the median. The problem is lack of EPS and that this company used to be an income trusts and income trusts have high yields.
Is it a good company at a reasonable price? The price is probably reasonable. Personally, I would not buy for two main reasons. One is the high debt level. The second one is that they do not seem to be able to make a profit.
When I look at analysts’ recommendations, I find Buy (6), Hold (4) and Sell (1). The consensus would be a Hold. The 12 month stock price consensus is $24.66. This implies a total return of $30.35% with 3.70% from dividends and 26.66% from capital gains.
Analysts on Stock Chase say it is a buy and like it because it produces green energy. Adam Othman on Motley Fool believe that this company will start to grow again. The executive summary on Simply Wall Street gives this stock 2 stars out of 5 and lists 2 risks. A writer on Simply Wall Street gives this stock a fair market value of $19.08. A writer on Simply Wall Street says he is uncomfortable with this company’s debt level.
Innergex Renewable Energy Inc is an independent Canadian renewable power producer. It develops, acquires, owns, and operates hydroelectric, wind, and solar facilities in Canada, the United States, France, and Chile. 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 Friday, November 12, 2021 around 5 pm. Tomorrow on my other blog I will write about Couch Potato Investing.... learn more on Thursday, November 11 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.
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