The ongoing push to reduce carbon emissions and prevent climate change is gaining significant momentum and is key driver for the rapid adoption of renewable energy.

One Canadian stock poised to benefit from this secular trend and deliver considerable value for investors is Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP). After struggling for years to unlock value from its globally diversified portfolio of clean energy assets Brookfield Renewable is finally delivering solid results. This saw the renewable energy utility defy the coronavirus pandemic and March 2020 stock market crash; it’s up by 7% for the year to date compared to the S&P/TSX Composite losing almost 11%.

There are signs of further solid results ahead, making now the time to buy Brookfield Renewable.

Diversified renewable electricity assets

Brookfield Renewable owns a globally diversified portfolio located across the Americas, Asia, and Western Europe with 19,300 megawatts of installed capacity. Notably, 74% of that capacity is derived from hydroelectricity with the remainder coming from wind and solar facilities.

It was Brookfield Renewable’s considerable reliance upon hydro that was responsible for its inability to unlock significant value from its portfolio. Poor hydrology in the Americas, notably in South America, was weighing on electricity production.

For the first quarter 2020, Brookfield Renewable’s portfolio generated 14,264 gigawatt hours (GWH) of electricity, which was 1% greater than a year earlier. Disappointingly, Brookfield Renewable’s proportionate adjusted EBITDA softened 1% year over year, and funds from operations (FFO) declined by 4%.

As a result, the renewable energy stock’s quarterly net income plunged 58% to US$18 million.

Solid defensive characteristics

Those numbers shouldn’t prevent you from adding Brookfield Renewable to your portfolio. The partnership’s earnings are secure and certain.

It possesses the defensive characteristics of traditional electricity utilities, such as steep barriers to entry and a wide economic moat, which protect it from competition. Those are strengthened by the unchanging demand for electricity, which is an important source of energy, which powers our modern lives and economy.

Brookfield Renewable has contracted 95% of its cash flows through inflation-linked power-purchase agreements. That further enhances their certainty.

Positioned for growth

The partnership’s earnings are poised to grow at a solid clip. Brookfield Renewable has a portfolio of eight facilities under construction, which will add 831 MW to its installed capacity on completion. Those facilities will be completed between now and the first half of 2020. The partnership expects them to boost FFO by around US$21 million.

Brookfield Renewable finished the first quarter with a robust balance sheet. This included US$294 million in cash and total available liquidity of around US$3 billion. While the partnership does have a massive pile of debt totalling US$9.6 billion, there are no material debt repayments for the next four years. That pile of debt is still only 6.7 times EBITDA, which is a relatively low ratio for an electric utility.

Brookfield Renewable also has access to the considerable capital of Brookfield Asset Management, further reducing the risks associated with that debt.

The partnership’s considerable liquidity means it is well positioned to continue making opportunistic acquisitions of quality renewable energy assets, which will boost electricity production and earnings.

Brookfield Renewable is also undertaking a recontracting initiative where it is seeking to establish new contracts for the electricity it produces at more favourable prices. That will continue to lift margins and boost profitability over the long term.

Foolish takeaway

There are considerable tailwinds ahead for renewable energy stocks, including the secular trend to cleaner energy. These will propel their earnings higher, as the world transitions away from fossil fuel-powered electricity production. Brookfield Renewable is among the best positioned to benefit because of its large, high-quality, globally diversified portfolio of renewable assets.

While waiting for its earnings to grow, unitholders will be rewarded by its sustainable distribution, which, after being hiked for 10 years straight, is yielding 4.6%.

The post Buy This Renewable Electricity Stock to Build Wealth appeared first on The Motley Fool Canada.

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Better than expected earnings

Scotiabank’s second-quarter earnings were better than analysts expected despite adjusted net income falling 39% year over year. Interest and non-interest revenue declined by just 3% and 2%, respectively compared to a year earlier.

Furthermore, loan quality not only remained high, but also improved. Scotiabank’s gross impaired loan ratio fell by 0.11% to 0.78%, indicating that despite higher loan volumes credit quality is firming.

Scotiabank is also well capitalized. It finished the period with a common equity tier 1 capital ratio of 10.9%, which was only 0.3% lower than a year earlier and still significantly higher than the regulatory minimum.

Why did bank earnings fall?

The key driver of the sharp decline in Scotiabank’s net earnings was its decision to substantially boost lending loss provisions. Lending loss provisions rose by a whopping $973 million, or % compare dot a year earlier despite credit quality improving.

The key reason for this growing concern over the sizable economic fallout from the coronavirus pandemic and related recession.

Banks around the world have been building sizable cash buffers to absorb the anticipated sharp uptick in impaired loans  that will be triggered by the recession. The rational for this is quite simple: Scotiabank is a systemically important financial institution.

There’s obviously no desire for a repeat of the collapse of the U.S. financial system during the great recession. As a result, regulators are pressuring banks to build cash buffers to blunt the impact of a recession on credit quality.

It’s unlikely that Scotiabank’s credit quality will deteriorate as significantly as the large sum allocated to credit loss provisions indicates. A combination of tight mortgage underwriting standards, loan insurance and a low loan to valuation ratio for Scotiabank’s credit portfolio will mitigate the losses.

Outlook for banks not as poor as believed

The impact of the coronavirus recession on Canadian households likely won’t be as severe as some pundits believe, however. Most downside for Scotiabank will be related to its exposure to Latin America, notably the Pacific Alliance countries of Mexico, Colombia, Peru and Chile. All four countries will likely experience significant economic contractions in 2020 because of the economic fallout from the pandemic.

Much of that downside already appears priced into Scotiabank’s market value. Once the economy returns to growth, which is anticipated to occur as early as 2021, Scotiabank’s earnings will soar. It will also be able to redirect the considerable capital currently being retained as a cash buffer to protect against a substantial decline in credit quality to revenue earnings activities.

That will further boost margins and earnings.

The economies of Colombia, Chile and Peru, where Scotiabank is a top five bank, will probably grow considerably once the pandemic ends. When that occurs, which could be as early as 2021, earnings for Scotiabank’s international business will soar.

Foolish takeaway

After suffering such a significant loss since the start of 2020, Scotiabank is extremely attractively valued, making now the time to buy. It will not only survive the coronavirus recession, but will also return to growth once the economy improves, giving Scotiabank’s earnings and ultimately share price a solid lift.

While waiting for that to happen, you’ll be rewarded by the bank’s sustainable dividend yielding 6%.

The post Now Is the Time to Buy Scotiabank (TSX:BNS) appeared first on The Motley Fool Canada.

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One Canadian natural gas stock that’s resistant to the poor economic outlook and the fossil fuels protracted slump is Canacol (TSX:CNE). The driller, which is focused on onshore natural gas production in Colombia, is down just over 21% for the year to date.

That’s roughly double the S&P/TSX Composite’s 11% decline and indicates that it’s attractively valued. The latest news from Canacol indicates that not only will earnings grow strongly once the economy returns to growth, but sales are returning to normal far earlier than expected.

Natural gas sales recovering

Canacol announced last week that interruptible natural gas sales were returning at a faster rate than expected despite Colombia’s ongoing coronavirus lockdown. For May 2020, sales on average reached 181 million standard cubic feet of natural gas per day (MMSCFD), which was 16% higher than a month earlier. That notable uptick in sales bodes well for Canacol’s earnings.

Impressively, that’s within Canacol’s revised 2020 guidance, when it forecast natural gas sales of 170 to 197 MMSCFD.

Secured higher than benchmark natural gas prices

Notably, because of Colombia’s energy crisis, Canacol has been able to establish take or pay contracts for the natural gas it sells at prices far higher than the North American Henry Hub benchmark. The driller has locked in an average price net of transportation costs of US$4.80 per million cubic feet (MCF) sold for 80% of the natural gas it produces.

That price is almost triple the Henry Hub benchmark.

In fact, for the first quarter, Canacol received an average price net of transport costs of US$4.54 per MCF. That saw it earn an operating netback of US$3.60 per MCF which was significantly higher than North American drillers.

Notably, to date there have been no defaults for Canacol’s contracted natural gas sales, which underscores the considerable profitability created by Colombia’s long-term natural gas supply deficit.

Unique natural gas market

A dearth of major petroleum discoveries, loss of Venezuelan imports and aging high decline rate of offshore natural gas fields means a shortfall for the foreseeable future. Demand for the fossil fuel in Colombia will grow significantly over the long term.

Low water levels have impacted Colombia’s electricity supply, which has led to an increased reliance upon natural gas fired power generation.

When those factors are combined with growing industrial and residential demand over the long term, fuel consumption will continue growing — and magnify the supply shortage. 

Rewarding shareholders

The contracted nature of Canacol’s sales coupled with Colombia’s emerging energy crisis make its earnings highly dependable. For that reason, Canacol commenced dividend payments in 2019 as a means of rewarding loyal shareholders.

Despite the coronavirus pandemic, weaker North American natural gas prices and poor economic outlook, Canacol has announced that it has no intention of reducing the payment. The dividend, which is yielding a very juicy 5.7% after Canacol’s latest price decline, appears sustainable.

That will be enhanced by higher earnings over the remainder of 2020 combined with Canacol’s moves to reduce debt to a more manageable 1.3 times EBITDAX by the end of 2020.

Foolish takeaway

Canacol will perform regardless of sharply weaker North American natural gas prices. The unique dynamics of Colombia’s energy market coupled with the highly contracted nature of Canacol’s earnings provide it with considerable financial certainty.

Growing sales in Colombia and improved access to markets will boost earnings over the long term. Given that Canacol is trading at less than half of its after-tax net asset value, now’s the time to invest.

The post Buy This Natural Gas Stock Today and See Stronger Earnings Ahead appeared first on The Motley Fool Canada.

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Since the start of 2020, gold has soared by 14% propelling many gold miners higher. One that has lagged its peers is Gran Colombia Gold (TSX:GCM), which has gained just 17%.

This, along with the potential held by its gold assets and bullishness surrounding gold makes now the time to buy Gran Colombia.

Why did this Colombian gold stock fail to keep pace?

A key reason for Gran Colombia’s poor performance relative to many similar sized gold miners is that it recently elected to abandon its acquisition of Guyana Goldfields (TSX:GUY). While the market may have marked it down for that development, it’s a good decision for Gran Colombia.

Guyana owns assets of questionable quality in an unreliable jurisdiction. The company has been beset by a raft of problems, including lacking the capital to execute its development plans, overstating its gold reserves and high operating costs.

Guyana is a high cost operator, which until gold’s latest rally was unprofitable. In 2019 Guyana reported cash costs before royalties of US$1,025 per ounce mined and all-in sustaining costs (AISCs) of US$1,490. That saw Guyana report a full year 2019 US$263 million loss.

For those reasons, the deal was a poor one for Gran Colombia. Guyana’s poor numbers are in stark contrast to Gran Colombia’s which is a significantly lower cost operator.

Solid financial results

Colombian gold stocks have been ignored by the market for some time. Gran Colombia, however, reported some solid first-quarter 2020 results. The miner reported cash costs of US$667 per ounce mined and AISCs of US$890. This highlights the miner’s considerable profitability in an operating environment where it received an average sale price of US$1,570 an ounce during the quarter.

That saw Gran Colombia report some notable first quarter numbers. Quarterly EBITDA shot up by a remarkable 43% year over year to US$50 million, while net income of US$24 million was three times greater.

Impressively, Gran Colombia generated almost US$18 million in free cash flow for the quarter.

Disappointingly, Gran Colombia’s first quarter gold production declined by 7% year over year to 56,247 ounces.

Second-quarter production is expected to be lower because of Colombia’s national quarantine, which the government implemented in late March as a response to the coronavirus pandemic, thereby limiting Gran Colombia’s ability to sustain operations at its flagship Segovia mine.

Gold’s latest rally, which sees it trading at US$1,730 per ounce, will offset lost revenue from lower production and should give Gran Colombia’s second-quarter earnings a solid lift.

Importantly for a smaller mid-tier Colombian gold miner operating in a demanding jurisdiction, Gran Colombia finished the first quarter with a solid balance sheet. It had cash just shy of US$100 million, significantly exceeding its long-term debt and lease obligations of US$49 million.

For the aforementioned reasons, Gran Colombia has considerable financial flexibility — a particularly positive attribute in a capital-intensive industry facing an uncertain operating environment.

Quality Colombian gold assets

Another particularly appealing aspect of Gran Colombia is the quality of its flagship Segovia gold mine. The mine,  located near Colombia’s second-largest city of Medellin, has reserves of 670,000 gold ounces at an impressive average grade of 10.5 grams of gold per tonne of ore (g/t) — a high grade in comparison to many other mines and important to note because the higher the grade the more economic it is to extract the gold.

Those reserves and Gran Colombia’s solid balance sheet give it a net asset value (NAV) of $10.40 per share. The miner is currently trading at a deep 60% discount to that NAV highlighting the considerable upside ahead, making now the time to buy.

Foolish takeaway

Colombian gold stocks have failed to attract attention from investors despite their considerable potential. Unlike many other gold stocks, Gran Colombia has failed to rally strongly despite gold surging to over US$1,730 an ounce.

This has created an opportunity to acquire a quality mid-tier gold miner at an attractive valuation, which will soar higher as gold rallies.

The post Got $1,000? Buy This Colombian Gold Stock Today appeared first on The Motley Fool Canada.

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Air Canada’s impressive bounce can be attributed to growing optimism over the economy, which triggered a solid market rally after the March 2020 stock market crash. There are fears, however, that the outlook is not as positive as the market believes.

Is the stock market’s optimism overdone?

A spike in coronavirus cases in the U.S. and Latin America is weighing on stocks. This could lead to further travel restrictions impacting airlines and tourism. The latest economic data also point to a rough road ahead for the foreseeable future, which would further impact travel demand. That has sparked fears that Air Canada’s latest rally is overdone and there is more downside ahead for Canada’s flag carrier.

Even after taking significant measures to mitigate the impact of the coronavirus pandemic and travel bans on its operations, Air Canada reported a larger first quarter 2020 loss. The airline announced a $1 billion net loss for the period despite revenue declining by only 16% year over year, which can be blamed primarily on a $711 million foreign exchange loss.

Even after the measures taken by Air Canada to blunt the financial impact of the coronavirus pandemic on its finances second quarter earnings will likely be worse. The pandemic only negatively affected first quarter’s final month, whereas it will have a profound impact on the economy and travel for the entire second quarter.

During the first quarter conference call, Air Canada’s chief financial officer stated that Air Canada was burning through around $20 million daily to cover fixed costs. When that’s considered along with Air Canada reducing second-quarter capacity by 85% to 90%, virtually wiping out most of its operating revenue, its operating loss will balloon out substantially.

An even greater fear is that the impact of the coronavirus on air travel will be far more severe than 9/11, the 2008 financial crisis, and the 2003 SARS epidemic. Air Canada expects it to take three years or possibly longer to recover from the pandemic. The coronavirus pandemic has been labelled by some industry insiders as the “darkest period ever” for commercial aviation.

How bad is the outlook for airlines?

Despite this particularly gloomy outlook, there are signs that Air Canada’s stock may be more positive than some pundits believe. The impact of the pandemic will be mitigated by Air Canada, sharply reducing costs by grounding most of its fleet, furloughing employees, cutting wages and reducing costs as well as capital spending.

Sharply lower fuel expense because of the oil price collapse will further cut operating costs for the foreseeable future.

The carrier also substantially boosted its liquidity, which saw Air Canada finish the first quarter with $6.1 billion of cash and short-term investors, 4% higher than at the end of 2019.

Canada’s flag carrier also recently closed a fully subscribed equity offering that generated gross proceeds of nearly $1.6 billion. That significantly boosted Air Canada’s cash buffer, liquidity and financial flexibility, markedly improving its ability to survive the current crisis.

Unlike its U.S. competitors, Air Canada has not received a government bailout. This provides an additional lever that can be used in an emergency to ensure Air Canada’s survival.

There are signs that air travel and tourism may recommence far sooner than anticipated. Many countries, notably in Europe, have begun reopening their borders. Others such as Colombia have flagged that tourism and international flights can recommence within the next three months.

While travel demand will remain low for some time, this bodes well for steadily increasing capacity and hence operating revenues.

Foolish takeaway

The latest developments coupled with Air Canada’s considerable liquidity and strong financial position explain why its stock spiked considerably over the last month.

While there are certainly significant headwinds ahead for the airline industry, Air Canada is one of the best positioned to emerge in solid-shape and return to growth. That makes Air Canada a top contrarian play for risk tolerant investors seeking outsized returns.

The post Air Canada Soars 38% in a Month: Time to Buy? appeared first on The Motley Fool Canada.

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The catastrophe, which was the only nuclear incident to receive a level seven rating on the international nuclear and radiological event scale, caused uranium to enter a prolonged multi-year price slump. This had a disastrous impact on uranium miners such as Cameco (TSX:CCO)(NYSE:CCJ). Many have shuttered uneconomic operations to stem the flow of red ink.

Nonetheless, Cameco has gained 20% since the start of 2020 because of uranium soaring by 36%.

The latest rally appears overdone. The industry exchange-traded fund (ETF) the Global X Uranium ETF, in which Cameco is the single largest holding, failed to keep pace, losing 1%.  There are substantial headwinds ahead for uranium, despite some analysts taking a bullish view regarding the outlook for the radioactive metal and nuclear energy stocks.

Why did uranium rally?

Uranium prices spiked not because of increased demand but rather due to the emergence of significant supply constraints. The coronavirus pandemic forced miners to shutter operations in accordance with government health guidelines aimed at preventing the spread of the virus.

Consequently, Cameco suspended production at its Cigar Lake uranium mine as well as operations at the Ontario-based Port Hope Conversion Facility’s UF6 plant and Blind River Refinery.

That caused global uranium supply, which has exceeded demand for some time, to fall below forecast consumption.

There are already moves afoot to reactivate operations at suspended facilities. Cameco recently announced that production at its suspended Ontario facilities will recommence. As the pandemic eases, uranium miners will move to restart shuttered assets. That will lift global supply over the short term, putting pressure on uranium prices.

Even the 55 reactors currently under construction, as estimated by the World Nuclear Association, will do little to significantly lift demand for uranium. On commissioning, many of those new facilities will only replace existing reactors that have reached the end of their operational life. This means that uranium demand won’t expand as significantly as expected.

Growing popularity of renewable energy

Over the long term, there are a wide range of headwinds. Key is the worldwide push to significantly bolster electricity production from renewable energy sources in place of nuclear power. The risks associated with the catastrophic failure of a renewable energy facility are far lower than those that arise if a nuclear reactor fails. This was clearly demonstrated by the Fukushima catastrophe.

Those hazards saw many countries, including France, Germany, Spain, Belgium, Switzerland, and South Korea, push to phase out nuclear power.

The aversion to nuclear power is aggravated by the falling cost of renewable electricity, which is substantially boosting the popularity of renewables. According to the U.S. Energy Information Administration, hydro, onshore wind, solar, and geothermal generate electricity more cheaply than nuclear power.

The cost and reliability of renewable energy will improve rapidly as technology advances. This will boost the rapid rate at which renewable technologies are already being adopted.

Poor outlook for uranium miners

That bodes poorly for Cameco and other uranium miners. Cameco is bleeding red ink and has been doing so for some time. The miner reported a net loss for four out of the last five quarters. The latest was a first-quarter 2020 $19 million loss.

Even Cameco’s savage cost cutting has done little to raise hopes of long-term profitability because of uranium’s poor outlook.

This means Cameco will eventually relinquish recent gains, which see it up by 20% for the year to date. 

Foolish takeaway

The secular trend to renewable sources of energy combined with the considerable unpopularity of nuclear power bodes poorly for uranium and nuclear energy stocks over the long term. In fact, with the radioactive metal being squeezed at both ends of the demand and supply spectrum, it is difficult to see any sustained long-term rally occurring. That means there are further disappointing results ahead for Cameco. That makes the uranium miner a poor investment and stock to avoid.

The post The Rise of Renewables and Demise of Cameco (TSX:CCO) appeared first on The Motley Fool Canada.

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It was no different for refiner and petroleum products distributor Parkland Fuels (TSX:PKI). The company, despite the strong rebound in stocks, is still down 27% for the year to date, or almost triple the S&P/TSX Composite’s 10%.

While markets remain choppy and the economic outlook is poor, this has created an opportunity to acquire Parkland at an extremely attractive valuation.

Weaker demand hits energy stock earnings

The sharp decline in economic activity failed to have a significant impact on Parkland’s first-quarter 2020 performance. Sales and operating revenue grew 3% year over year, while adjusted gross profit was only 15% lower.

Parkland’s quarterly adjusted EBITDA of $191 million was 39% lower than for the equivalent period in 2019. That saw the company report a $79 million net loss compared to a $77 profit a year earlier.

A large portion of EBITDA’s decline can be attributed to the Burnaby refinery turnaround, which had a $104 million impact. The oil price collapse, which occurred during the quarter, and the emergence of the coronavirus pandemic negatively affected margins. The net loss was primarily caused by a valuation and foreign exchange losses.

Parkland’s second-quarter earnings will be worse because of the impact of coronavirus on the economy, leading to a marked decline in demand for fuels and petroleum products. That will be offset, however, by the Burnaby refinery operating at full capacity after the successful completion of its turnaround.

Inelastic demand helps energy stocks

Parkland is also ideally positioned to weather the coronavirus pandemic because of recent moves made to bolster liquidity and strengthen its financial position. It amended its credit agreement, adding a further $300 million and boosting its cash holding at the end of March 2020 to $1.2 billion.

Importantly, the facility doesn’t mature until January 2023, giving Parkland considerable breathing space to emerge from the crisis and generate sufficient funding to repay the loan.

Parkland was also able to renegotiate the financial covenant on its credit facility. The total funded debt to credit facility EBITDA multiple was increased to six times, or more than double the 2.9 times reported for the first quarter, until the third quarter 2021.

That gives Parkland further breathing space, while enhancing its financial flexibility in the current harsh operating environment.

Parkland’s ability to survive the current economic crisis is enhanced by the relatively inelastic demand for fuels and other petroleum products.

Dividend can be maintained

By strengthening its financial position, Parkland has improved the sustainability of its regular monthly dividend. As of the end of March 2020, Parkland had a trailing 12-month payout ratio of 79%, and that could rise to over 100% if net income declines further, which is likely.

By boosting its considerable liquidity Parkland can sustain the payment for the short term, even as its losses widen because of weaker demand for fuels. Nevertheless, if the economic slump continues for a prolonged period, Parkland could be forced to cut the payment to protect cash flow and its balance sheet.

Foolish takeaway

Parkland is very attractively valued and will pull through the existing difficult operating environment in good shape. Its earnings will grow at a solid clip once the economy improves and the pandemic comes to an end. While waiting for that to occur, if you buy today, you will be rewarded by a monthly dividend yielding a juicy 3.6%.

The post Buy This Energy Stock Today for Income appeared first on The Motley Fool Canada.

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One that stands out is Innergex Renewable Energy (TSX:INE). It defied the March 2020 stock market crash and the coronavirus pandemic, which caused many stocks to fall sharply, to be up 14% for the year to date.

That sees it beating the broader TSX with the S&P/TSX Composite losing 10%. There are clear signs that Innergex is poised to deliver further gains, regardless of choppy markets and economic uncertainty.

Innergex successfully executed a strategic turnaround

The renewable electricity utility is unlocking considerable value for shareholders after successfully executing a turnaround strategy commenced in 2018. This saw Innergex report progressively stronger earnings and strengthen its balance sheet.

All-important first-quarter 2020 electricity production shot up by a healthy 28% compared to a year earlier. That can be attributed to the commissioning of the Phoebe solar farm and Foard City Wind Farm, both located in Texas.

On a disappointing note, adjusted EBITDA for the period dropped by 3% year over year, because of lower revenue from Innergex’s Quebec-based hydro and wind facilities.

Innergex has successfully strengthened its balance sheet, boosting its financial flexibility and making it a more appealing investment. The renewable electricity utility’s long-term debt fell by 9% compared to the equivalent period a year earlier to be $4.3 billion. Innergex finished the period with $271 million of cash, bolstering its ability to fund the development of existing projects and make acquisitions.

During 2020 Hydro-Quebec became Innergex’s largest single shareholder, acquiring a 19.9% interest in the renewable energy utility. That was completed through the successful execution a $661 million private equity placement. Hydro-Quebec also entered a strategic alliance with Innergex where it has committed to co-invest $500 million with the renewable energy utility.

This adds a further degree of certainty to Innergex’s operations because Hydro-Quebec is government owned and one of Canada’s largest power utilities.

Expanding renewable power portfolio

Innergex is positioning itself for further growth. It has a development pipeline comprised of nine projects. Two of those projects will be commissioned in 2020, adding 207.5 megawatts to Innergex’s total installed capacity. Another four assets under development are forecast to be completed and enter service by the end of 2020, adding a further 161 megawatts to the utility’s installed capacity.

The additional electricity produced will boost Innergex’s earnings over the coming three years.

Innergex also acquired a 68-megawatt wind farm in Chile in mid-May 2020 for $93 million, which included an 11-year power-purchase agreement. That will further boost the company’s electricity output and earnings.

The global secular trend to cleaner renewable sources of energy will act as a long-term earnings tailwind.

Like all electric utilities, Innergex possesses a wide economic moat, which shields it from competition and protects its earnings. The certainty of Innergex’s earnings is enhanced by its existing power-purchase agreements, which have a weighted average term of just over 15 years.

Foolish takeaway

Innergex is a top renewable energy stock. It will unlock considerable value over the foreseeable future. A combination of the growing demand for renewable electricity and commissioning of new assets will significantly boost earnings. That will give Innergex’s share price a solid lift. While waiting for that to occur, you will be rewarded by Innergex’s sustainable dividend yielding a juicy 3.9%.

The post 1 Renewable Energy Stock to Buy Today appeared first on The Motley Fool Canada.

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Oil price crash impacts operations

The Colombian-based driller is down by 64% since the start of 2020, which is far greater than the international Brent oil price, which plunged 49%. It is feared that sharply weaker oil and the measures taken to contain the coronavirus will see Gran Tierra pumping crude at a loss. This is being magnified by farmers’ blockades in southern Colombia, which have forced Gran Tierra to shutter additional production at two blocks in the Putumayo Basin.

As a result, first-quarter 2020 production fell by 23% year over year to 29,527 barrels of crude daily. This, along with significantly weaker oil, caused Gran Tierra’s earnings collapse.

The driller’s operating netback, which is a key measure of operational profitability, plunged to US$16.56 per barrel, which was 54% lower than a year earlier. Quarterly EBITDA of US$34.5 million was 63% lower year over year.

Consequently, Gran Tierra reported a US$252 million net loss compared to a US$2 million profit a year earlier.

Gran Tierra’s second-quarter 2020 numbers will worsen, because oil fell even further during April, and additional fields with zero or negative netbacks were shut in.

Reducing the impact of the oil price crash

To protect is balance sheet, Gran Tierra has suspended capital spending and deferred its well workover program. The driller has also bought more oil price hedges to mitigate the impact of sharply weaker oil. Gran Tierra’s ability to survive is supported by its US$39 million of cash at the end of the first quarter. One of the key reasons for the market pummeling is that Gran Tierra’s debt since 2016 has ballooned out to US$787 million, which is a worrying three times trailing 12-month EBITDA.

That highlights there is considerable pressure in the current harsh operating environment on Gran Tierra to strengthen its balance sheet. The driller recently announced that it had successfully redetermined its credit facility. That saw the base limit reduced to US$225 million from US$300 million. The syndicate of lenders also waived the debt to EBITDAX covenant until October 2021, reducing the risk of Gran Tierra breaching its financial obligations.

Gran Tierra acquired additional oil price hedges to offset sharply weaker crude. As a result, 11,000 barrels of daily oil production is hedged for the second quarter, and 9,000 barrels are hedged during the second half 2020. This will mitigate the worst of the marked impact of sharply weaker oil prices on Gran Tierra’s earnings.

The driller’s second-quarter oil production has averaged around 21,000 barrels daily. This is 29% lower than Gran Tierra’s first-quarter oil output. That — along with weaker oil prices — will impact Gran Tierra’s second-quarter earnings.

Foolish takeaway

Gran Tierra appears well positioned to survive the current difficult operating environment. The driller has sufficient liquidity to survive until the end of 2020. It will also experience a lift in cash flow, as oil prices rebound. Gran Tierra is a speculative and risky play on higher oil prices, but it is attractively valued and will survive until Brent recovers.

The post Will the Oil Price Crash Bankrupt Gran Tierra (TSX:GTE)? appeared first on The Motley Fool Canada.

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The international Brent price has climbed to US$41 per barrel — and will rally even higher over the second half of 2020. The oil price collapse and stock market crash saw oil stocks trading at extremely attractive valuations, creating a once-in-a-generation opportunity to acquire drillers trading at deep discounts to their indicative fair value.

One stock which has performed exceptionally since the 2020 stock market crash is Parex Resources (TSX:PXT). The Colombian-based driller has gained a whopping 64% since the stock market bottomed in late March — significantly more than Brent’s 18% gain and the S&P/TSX Composite Index’s 32%. That highlights that even amid the current choppy market weighed down by sharply weaker oil and a poor economic outlook, it’s possible to invest in oil stocks and generate outsized returns.

Even after that rally, there are signs that Parex is still deeply undervalued and poised to rally further as oil climbs higher over the remainder of 2020.

Quality oil assets

Parex owns 2.4 million acres composed of 22 blocks in Colombia’s prolific Llanos and Magdalena Basins. It has been independently determined that Parex’s oil acreage holds proven and probable reserves of 198 million barrels of oil.

Those reserves have been calculated to have an after-tax net asset value of $28.84 using a flat Brent price of US$60 per barrel. That’s a whopping 74% greater than Parex’s current market value, highlighting the considerable capital gains ahead as oil prices rebound.

Parex has a long history of growing its oil reserves and production. Its oil acreage has considerable exploration upside. Once Parex recommences its drilling program, the company’s oil reserves will likely grow, boosting Parex’s net asset value to expand creating further upside for shareholders.

Growing oil production

Parex’s oil production will grow significantly once development drilling recommences. The company is in the process of improving infrastructure at the Capachos field, where it has a 50% working interest. Parex also acquired five oil blocks in Colombia during the second half 2019, bolstering the exploration potential.

Solid fundamentals

What makes Parex stand out amid a capital-intensive industry where many drillers are heavily indebted is its rock-solid balance sheet. It finished the first quarter 2020 with no long-term debt and a modest US$83 million in other long-term liabilities.

Notably, Parex finished the period with US$397 million in cash, giving it considerable financial flexibility in the current harsh operating environment. Such a large amount of cash will allow Parex to fund further acquisitions and drilling as oil prices recover.

Foolish takeaway

It’s easy to see why Parex has performed strongly since the stock market crash. A combination of quality oil assets, robust balance sheet and no long-term debt makes it an extremely attractive play on higher oil.

Now is the ideal time to buy Parex because it is trading at a deep discount to its after-tax net asset value.

The post This Oil Stock Has Gained 64% Since the Stock Market Crash appeared first on The Motley Fool Canada.

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