Scotia commentsQ3 Miss Driven by Weak Generation Portfolio-Wide, LongTerm Guidance Largely Intact\
OUR TAKE: Mixed.
Q3 Adjusted EBITDA Proportionate of $145M was 9% behind our estimate of $159M and 12% below consensus of $164M on lower-than-expected generation from all segments.
Trailing-12-month FCF per share of $0.50 was largely in line with our expectation, resulting in a payout ratio of 141%.
Due to the soft quarterly results the company has reduced its 2020/2021 y/y growth guidance. Revenues and Adjusted EBITDA have only been minorly impacted, now expected to grow 10% y/y, previously 12%. Adjusted EBITDA
Proportionate growth guidance, however, has been reduced from 12% to 2%, which, the company has indicated is the result of the loss of contributions from the Flat Top and Shannon JVs. Positively, despite the reduced 2021 outlook, the company reiterated its 2020 to 2025 guidance as laid out in its strategic plan unveiled at the company's recent Investor Day. We maintain our Sector Perform rating and one-year target price of $26.50.
KEY POINTS Recent Curtis Palmer acquisition closed. INE and Hydro-Qubec completed the acquisition of two run-of-river hydro facilities, the Curtis Palmer portfolio, located in New York State (60MW combined capacity). The assets will be jointly owned (50/50) with Hydro-Quebec, the first projects to be co-invested as part of the strategic alliance between Innergex and the utility. The addition of these assets increases the company's gross hydroelectric capacity by 5% and gross total capacity by 2%. The projects are expected generate annual Adjusted EBITDA and free cash flow of US $42.1M, and US $39.5M.
Curtis Palmer, by the numbers. The addition of the Curtis Palmer assets increases the company's gross hydroelectric capacity by 5% and gross total capacity by 2%. The projects are expected generate annual Adjusted EBITDA and free cash flow of US $42.1M, and US$39.5M. We viewed the transaction as being 13% and 22% accretive on a FCF per share basis, in 2022 and 2023, respectively.
The purchase price implies an Adjusted EBITDA multiple of 7.3x and a Free Cash Flow yield of 13%. INE currently trades at 14.0x 2022E EV/Adj. EBITDA (prop.) and at a free cash flow yield of 3.4%.