Brookfield Renewable Partners L.P. (TSX: BEP.UN) is a renewable power generating company which holds a portfolio of renewable power generating facilities within North America, Latin America, and Europe.               

Key Updates:

• Elevated Power Generation: In Q1FY22, the company reported actual power generation of 15,196 GWh, which is higher than 13,828 GWh in pcp. This is primarily attributable to a higher demand scenario due to growing traction for carbon-free baseload generation. Notably, long-term average generation also stood higher at 15,097 GWh in Q1FY22, as compared to 14,099 GWh in pcp. We expect this trend is likely to continue in the coming quarters supported by growing usage of renewable energy.
  

• Bullish Industry Outlook: The company has a diversified high-quality renewable asset and has exposure across hydroelectric, wind, solar segments along with storage facilities. The group’s portfolio includes utility-scale facilities, back-up storage power and distributed power generation. As the overall industry is leaning towards the renewable sources of energy, the company is highly poised to take advantage of the growing demand. Moreover, the company’s revenue is not dependent on a particular geography or operation, which lead to a lower dependence on any particular segment and provides a stable risk profile.

• Robust Profitability margins: In Q1FY22, the company posted its EBITDA margin and operating margin of 64.6% and 29.3%, respectively, as compared to the industry median of 58.6% and 26%, respectively. This indicates an improved cost management and higher operational efficiency. Net margin stood at 2.9% in Q1FY22, as compared to the industry median of 0.6%.
  

  Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• Un announced its first quarter FY22 result, wherein the company posted revenue of USD 1,136 million, v/s USD 1,020 million in pcp. The growth was supported by higher revenue from the hydroelectric segment.
• The group implemented prudent cost management and posted a higher direct operating cost of USD 350 million v/s USD 391 million in pcp. On the flip side, the interest expense and depreciation stood higher than the previous corresponding period.
• The company reported a net income of USD 33 million, as compared to a net loss of USD 55 million in pcp, supported by impressive cost management, as stated above, partially offset by an inclusion of income tax expense of USD 16 million v/s an income tax recovery amounting USD 17 million.

 Valuation Methodology (Illustrative): Price to CF based

Analysis by Kalkine Group

Stock Recommendation:

The company has ~3,200 experienced operators and approximately 120 power marketing experts that are located across the globe to help optimize the performance and maximize profitability. Moreover, the company is focused on delivering resilient, stable distributions plus meaningful growth through all market cycles by driving cash flow growth from existing operations. Lastly, the stock of BEP.Un carries an impressive dividend yield of ~3.659% on an annualized basis, which looks impressive considering the persisting interest rate scenario.

We have valued the stock using the Price to Cash Flow based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Clearway Energy Inc, Nextera Energy Partners LP etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of BEP.UN at the last closing price of CAD 44.88 on June 15, 2022.

One-Year Technical Price Chart (as on June 15, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV

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