Brookfield Renewable Partners L.P.

Business remains immune to economic cycles: Brookfield Renewable Partners L.P. (TSX: BEP.UN) is a renewable power company with an installed capacity of 19,000 MW. Brookfield Renewable is a pure-play renewable power company with its portfolio consisting of hydro, solar, wind, distributed generation and storage capacity. The company has 5,274 power generating facilities across North and South America, Europe, China, and India. Investors should note that the stock price appreciated ~55% in the last one year and currently trading above its 200-Day Simple Moving Average (SMA).

The company distributed a US$ 0.5425 dividend per share on a quarterly basis. Recently, BEP.UN confirmed its issuance of medium-term notes worth CAD 350 million, due in January 2029 and January 2030 with an interest rate of 3.57% and 3.62%., respectively. The above funds will be used to repay its existing debt. The company recently stated that it would announce its first quarter FY20 results on May 6, 2020.

FY19 Operating Highlights: BEP announced its full-year results, wherein the company reported revenues of US$ 2,980 million, which was almost flat when compared to the prior year. Fund from operation (FFO) stood at of US$ 761 million, reflecting an increase of 13% on y-o-y basis, aided by improved operational performance, positive impact from acquisitions and growth from margin improvement initiatives. The company’s total generation stood at 52,560GWh, higher than 52,056GWh in the previous financial period. Net income stood at US$ 273 million, as compared to US$403 million in FY18. The decline was primarily due to an income tax benefit in FY18. The company exited the year with cash and cash equivalents of US$115 million and total assets of US$ 35,691 million.

 Valuation Methodology (Illustrative): EV/EBITDA based approach

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: The stock of BEP.U is trading at CAD 65.74 with a market capitalization of CAD 11.89 billion. The company’s stable and diversified cash flow generating capabilities makes it attractive long-term bet. The company’s power output is contracted under the long-term power purchase agreement, which ensures steady cash flows even when the economy is down. Further, the company is able to realize the higher prices through inflation indexation of these contracts. Notably, Brookfield Renewable’s power purchase agreements have a weighted-average remaining duration of about 13 years, which is encouraging. Moreover, for 2020, nearly 95% of proportionate generation output is already contracted to the creditworthy counterparties. The stock generated a ~26% return in the last one month, comfortably beating the index and offers an attractive dividend yield of ~4.31%. We have valued the stock using the EV/EBITDA based relative valuation method. We have taken peers like Algonquin Power & Utilities Corp (TSX: AQN), Northland Power Inc (TSX: NPI), Boralex Inc (TSX: BLX) and arrived at a target price which implies a potential upside in low double-digits. Hence, we recommend a “Buy” on the BEP.U stock at the closing market price of CAD 65.74 as on April 20, 2020.

BEP.U Daily Price Chart (Source: Thomson Reuters)

Shopify Inc.

Stellar Growth in Traffic Driving Stock Higher: Shopify (TSX: SHOP) continues to outpace broader markets with its stock performance. The increased demand for Shopify’s offerings has driven its stock higher in the recent past. As people stay indoors, Shopify is witnessing huge growth in traffic, which is reflected in its stock price. Shopify stock surged more than 71% so far this year and has outperformed the broader markets by a considerable margin.

Notably, Shopify provides tools and platform to retail businesses to start, grow, and manage their business. The company’s strong competitive positioning and product expansion have resulted in consistent revenue growth. Shopify has more than 1 million businesses across 175 countries that use its platform. Investors should note that the company will announce its first quarter result on May 6.

Financial performance: Shopify impresses with its stellar financial performance. The company’s Gross Merchandise Volume and top line have consistently grown at a stellar double-digit rate in the last five years. Besides, its monthly recurring revenue (or MRR) has increased at a CAGR of 52% since the first quarter of 2015.  Shopify’s top line soared more than 47%% y-o-y to US$ 1,578.2 million in 2019. Meanwhile, gross merchandise volume jumped 49% y-o-y. Investors should note that Shopify managed to report strong set of numbers despite tough y-o-y comparisons. Strong sales drove double-digit growth in its gross profit dollars. As sales continue to rise at a breakneck pace, Shopify has managed to lower costs over the past several years. Shopify’s adjusted operating expenses as a percentage of sales have declined from 58% in 2015 to 53% in 2019.

Financial Highlights (Source: Company Reports)

Stock Recommendation: As people stay indoors amid COVID-19 outbreak, e-commerce companies are witnessing a sharp spike in demand. Notably, as Shopify provides the tools and platform to the retail businesses around the world, it is witnessing a strong surge in traffic. Though the pandemic is negatively impacting small businesses around the world, the surge is traffic continues to drive Shopify stock higher. We believe the company’s solid business model and operational efficiencies bode well for long-term growth. On April 16, Jean-Michel Lemieux, Shopify’s Chief Technology Officer tweeted that the company is “handling Black Friday level traffic every day,” as people shift to online shopping. Further, he expects traffic to double. The CTO’s tweet boosted Shopify stock further. Investors should note that Shopify trades at a high valuation multiple. However, we believe the company’s premium valuation is justified given the stellar growth. We recommend a “Hold” on Shopify stock at the closing price of CAD 887.56 on April 20, 2020.

SHOP Daily Price Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.