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: The corporation had remarkable growth in 2021. It added over 1,000 megawatts of capacity and ended the year with around 15,000 megawatts of construction and advanced-stage projects. These projects span from distributed to utility-scale solar, wind, storage, hydro, and green hydrogen in 14 different countries. Once completed, we believe that these efforts will generate about USD 180 million in annual FFO for the company. In addition, the business has a global development pipeline of around 62,000 megawatts.

• Elevated Funds from Operations: The company generated USD 934 million in funds from operations, a 16% increase over USD 807 million in pcp, as its assets continued to perform effectively, with strong levels of asset availability and new acquisitions, as well as higher realized prices across most markets due to inflation escalation, commercial contracting initiatives, and higher global power prices.

• Strong Balance Sheet and Liquidity: The group's financial position remains robust, with roughly USD 4.1 billion in cash and no significant near-term maturities on its investment grade balance sheet. According to its management, the above liquidity is sufficient to meet the firm's near-term capital requirements.

• 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 0.32 per LP unit, on March 31, 2022, represented a 5% increase against the sequential quarter. Additionally, the stock carries a dividend yield of 3.24% on an annualized basis, which looks attractive considering the persisting interest rate scenario.

• Acquired Urban Grid: Recently, the company purchased Urban Grid in North America, a major utility-scale solar developer in the United States with a 20,000-megawatt development pipeline and a strong presence in the high-value PJM market. It has 2,000 megawatts of under construction or ready-to-build solar projects in its pipeline, as well as 4,000 megawatts of de-risked advanced stage buildout prospects.

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 Q4 2021 (in millions of USD)

Source: Company Filing

• In Q4 2021, the company’s revenue increased to USD 1,091 million, against USD 952 million in the previous corresponding period. The higher revenue was mainly due to healthy production from all segments along with acquired facilities which contributed to revenue.
• The company witnessed higher direct operating cost at USD 375 million against USD 357 million while the management service cost deescalated to USD 64 million against USD 84 million in pcp.
• The company reported higher depreciation expenses, higher interest expense still it managed to transform its losses into a net profit of USD 33 million in Q4 2021 against a loss of USD 5 million in pcp.

 Valuation Methodology (Illustrative) EV to Sales

Stock recommendation

FY 2021 was another strong year for the company's business, as it achieved its highest-ever FFO of USD 934 million and continued to expand development activities, with over 15,000 megawatts of capacity under construction or in late-stage development, and a global development pipeline of 62,000 megawatts.

The company is well positioned to capitalise on rising demand, owing to a solid construction pipeline. Furthermore, the company maintained its excellent investment-grade balance sheet and ended the year with over USD 4 billion in accessible liquidity, as well as access to big sovereign and institutional capital that it may invest alongside, providing improved flexibility for future growth.

Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of BEP.UN at the last traded price of CAD 49.32 on April 11, 2022. Moreover, 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 on April 11, 2022). Source: REFINITIV, Analysis by Kalkine Group

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