Infinis Energy PLC Vs IGAS Energy PLC: Which Energy Stock Should You Buy?

Will Infinis Energy PLC (LON: INFI) or IGAS Energy PLC (LON: IGAS) prove to be the better long term investment?

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Shares in renewable energy company, Infinis (LSE: INFI) and shale gas operator, IGAS (LSE: IGAS) are up strongly today after positive news flow.

Meeting expectations

In the case of Infinis, its shares have risen by over 5% after it reported a strong first quarter of the year. For example, Infinis generated 586 gigawatt hours of power in the first quarter of the year, which is up from 572 gigawatt hours in the first quarter of the previous year. Furthermore, Infinis has been able to meet market expectations thus far for pricing and costs, which is encouraging news for its investors.

However, challenges could lie ahead for Infinis. For example, the government subsidies for renewable projects are due to change and the company is facing some uncertainty as it attempts to complete onshore wind projects in time to receive them.

Fast-track fracking

Meanwhile, IGAS’s shares have risen by over 8% today as the company received a boost from the UK government’s comments regarding the future of fracking. In fact, fracking will now be considered a national priority and, as a result, applications to engage in fracking will be fast-tracked so as to avoid the lengthy delays by local councils that have become a feature of the industry in recent years.

Looking ahead, IGAS appears to be on the right side of government policy. That’s because the Conservative majority government appears to be keen to embrace fracking because of the additional employment opportunities and tax benefits that it could bring. That’s especially the case since it appears likely that investment in the relatively uncompetitive North Sea oil and gas sector may decline over the medium to long term, as energy companies continue to cut back on capital expenditure and investment.

Under pressure

Infinis Energy, though, could struggle in the short run as the government is scrapping the exemption to the climate change levy and, partly as a result of this, the company’s bottom line is due to come under pressure in the next couple of years. For example, earnings are forecast to decline by 12% this year and by a further 3% next year.

This puts the company’s dividend under additional pressure, with shareholder payouts being roughly the same as net profit. As a result, it would be of little surprise for Infinis to cut its dividend over the medium to long term, although it is likely to remain a top income stock due to its present yield being a whopping 7.1%.

Preferred option

Looking ahead, IGAS has strong growth prospects. Its earnings per share are set to rise to 1.7p next year, which puts it on a forward price to earnings (P/E) ratio of 17.2. While this is higher than Infinis’ forward P/E ratio of 13.6, IGAS appears to have brighter prospects than its renewable peer and, with the government’s proposed opening up of shale resources in the UK, it stands to benefit to a significant extent from a more favourable operating environment.

So while both stocks appear to be worth buying, IGAS seems to be the preferred option at the present time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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