for your interestInnergex Renewable Energy Inc.
Target Reduced on Foreclosure Uncertainty
OUR TAKE: Negative.
Innergex provided a highly anticipated update on the fallout from the extreme conditions experienced by Texas in mid-February. Capture of high pool prices on merchant exposure partially offset large power hedge loses resulting in net impacts to revenue and free cash flow of -$17M and -$16M, respectively.
As expected, however, non-cash impacts and impairments were higher at $64M and $112M, respectively. We take this opportunity to adjust the multiples by which we value the various streams to better reflect our higher risk assumptions as well as where we see the market as currently trading. Specifically, we've reduced our 2023E EV/EBITDA multiples for the wind, hydro, and solar streams by 1.0x, 0.5x and 0.5x turns, respectively. As such, we reduce our target price by $3 to $23 per share.
KEY POINTS
Texas events have resulted in management re-evaluating value of two assets. On a non-cash basis, INE's share of losses of joint ventures amounted to a net loss of $64M. The joint ventures of both the assets that contributed to these losses, the Flat Top and Shannon wind facilities, recognized impairment charges of $112M net to INE. The impairment is the result of an increase to the discount rate used to determine the present value of the assets' cash flows. As a result, management does not currently consider these facilities to be viable in the long-term.
Force majeure claimed for three assets. The counterparties of the power hedges on the Phoebe solar and Flat Top and Shannon wind projects were notified of claims of force majeure and subsequently rejected them. The Flat Top and Shannon JVs have applied for an injunction against a default of payment claim made by the counterparties. The court is expected to reach a decision by May 20. If the application is denied the counterparty will be within its rights to exercise any of its remedies which includes foreclosing on the facilities.