Brookfield Renewable Partners L.P. (TSX: BEP.UN) is a globally diversified, multi-technology owner and operator of clean energy assets. The company's portfolio consists of hydroelectric, wind, solar, and storage facilities in North America, South America, Europe, and Asia, and holds approximately 21 gigawatts of installed capacity.

Key Highlights:

• Improved total capacity (MW) and power generation (GWh): For Q1FY22, the company reported an increase in the total capacity to 20,884 MW (megawatts) against the total capacity of 20,638 MW in Q1FY21. The group managed to scale the long-term average power generation to 15,097 GWh (gigawatt hours) in Q1 FY22 vs the long-term average generation of 20,638 GWh in Q1FY21. The actual generation rose to 15,196 GWh in the same period (Q1FY22) vs 13,828 GWh in Q1FY21. The increase in the production capacity and total generation will help the company to meet the rising demand, which is a key positive.

• Industry beating profitability margins: In Q1FY22, the group reported increased revenues, clubbed with higher production, and curtailed expenses, which supported the company to outpace the profitability margins as compared to the industry median.

Source: Refinitiv, Analysis by Kalkine Group

• Increase in adjusted EBITDA: During Q1FY22, the company witnessed an increase in the adjusted EBITDA to USD 499 million against the adjusted EBITDA of USD 489 million in Q1FY21. The hydroelectricity segment (which contributes 47% to the total adjusted EBITDA) posted an adjusted EBITDA of USD 235 million in the same period (Q1FY22) as compared to USD 224 million in Q1FY21.

• Strong contractual profile: The group is majorly working on a contractual basis and currently holds a strong pipeline of projects in its portfolio. The remaining FY22 is supposed to end with the total long-term average production of 29,703 GWh, whereas FY 23 is set for 39,828 GWh, FY 24 is estimated at 39,828 GWh & FY26 to end with 39,828 GWh of total average production. This suggests that the company is having a robust project pipeline that should be generating significant revenue in the corresponding period.

Risks associated with investment

The group’s major revenue portion is driven by growing demand for electricity consumption and any economic slowdown or COVID-19 restriction can dampen the revenue significantly. The other key issues the company is facing are rising costs, rise in interest rates, increased debt burden, etc.  

Financial overview of Q1FY22 (Expressed in millions of USD)

Source: Company Filing 

• During Q1FY22, the group reported an increase in revenues to USD 1,136 million versus the revenue of USD 1,020 million in Q1FY21. The increase in sales was because of the mix of increased production and higher average realized pricing. Also, the recent acquisition generated 1,038 GWh and contributed revenue of USD 90 million, which helped the increase in revenue in Q1FY22.

• The direct operating costs in Q1FY22 reduced to USD 350 million as compared to USD 391 million in Q1FY21.

• The group transitioned to a net income of USD 33 million in Q1FY22 from the net losses of USD 55 million in Q1FY21.

Valuation Methodology (Illustrative): EV/ Sales based Valuation

Analysis by Kalkine Group

Stock Recommendation:

The company reported an increase in the revenue to USD 1,136 million in Q1FY22 as compared to the revenue of USD 1,020 million in Q1FY21, also the adjusted EBITDA rose to USD 499 million in the same period (Q1FY22) vs the adjusted EBITDA of USD 489 million in Q1FY21. The company performed well on the production capacity, increasing it to 20,884 MW in Q1FY22 against 20,638 MW in Q1FY21. On the valuation front, the stock is measured on the EV/ Sales based multiple and we have considered Brookfield Renewable Corp., Nextera Energy Partners LP., etc. as the peer group for the comparison. 

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock of BEP.UN at the last closing price of CAD 47.34 on May 26, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as of May 26, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

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