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 highlights

• Robust construction pipeline: Despite extensive supply chain issues, the corporation is making good headway, completing a 7,000-megawatt construction pipeline. Wind repowering initiatives in the United States are proceeding well. Furthermore, it completed the 360-megawatt Alex solar project ahead of time in Brazil, and work on the 1,200-megawatt Janaba solar project is underway. In the first half of 2022, the company plans to begin work on the 270-megawatt Serido wind farm. These prospects are just a small part of the organic growth efforts it plans to implement over the next few years.

• Elevated funds from operations: The company generated USD 210 million in funds from operations, up 32% from the same time last year, as its assets continue to perform effectively, with strong levels of asset availability and new acquisitions.

• Strong balance sheet and liquidity: The group’s financial position continues to be strong as it holds liquidity of approximately USD 3.3 billion, also its investment grade balance sheet has no meaningful near-term maturities. As per its management the above liquidity is sufficient to cater to the near-term capital requirements of the firm.

• An income Play: The company has paid consistent dividends to its stockholders in recent years, underpinned by reliable cash flows. Notably, the firm paid a dividend of USD 0.30375 per LP unit, on December 31, 2021, and intends to maintain a sustainable distribution with yearly increases of 5% to 9% on average, which is a significant positive. Additionally, the stock carries a dividend yield of ~3.34% on an annualized basis, which looks attractive considering the persisting interest rate scenario.

Source: REFINITIV, Analysis by Kalkine Group 

Risks associated with investment

Higher input costs would likely dampen the company’s profitability and cash flows in the coming quarters. Moreover, the group has reported a consistent surge in the debt component, which is likely to take a toll on the overall financial flexibility of the group. 

 Financial overview of Q3 2021 (in USD)

Source: Company Filing

• In Q3 2021, the company’s revenue increased by USD 99 million to USD 966 million, against the previous corresponding period. The higher revenue was mainly due to recent acquired and commissioned facilities which contributed 761 GWh of generation and USD 83 million to revenue.
• The company witnessed higher direct operating cost at USD 292 million against USD 281 million and management service cost also escalate to USD 71 million against USD 65 million in pcp.
• On the back of higher operating expenses, higher interest expense and higher tax in the reported period, the company witnessed elevated net loss of USD 154 million compared to net loss of USD 119 million in pcp.
  

Valuation Methodology (Illustrative) EV to Sales 

Stock recommendation

As long as the renewables market continues strong, the business expects to make significant profits from its projects, and the favorable price environment and expanding demand for clean baseload electricity have resulted in substantial contracting and financing capacity within its hydro fleet. The company is well positioned to capitalize on increased demand thanks to a strong construction pipeline. It also has USD 3.3 billion of cash on hand, with no major near-term maturities. Liquidity is crucial because the company's operations are capital-intensive. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of BEP.UN at the last traded price of CAD 45.31 on December 31, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Summary Analysis

One-Year Technical Price Chart (as on December 31, 2021). Source: REFINITIV, Analysis by Kalkine Group 

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

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