Brookfield Renewable Partners L.P.

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:

• Growing Traction from Renewables: The company is enhancing its presence across the renewable segment (the wind and solar segment) across United States, Europe, and India. As most of the developed nations are leaning towards renewables in order to curb pollution, we believe the opportunity remains massive, which would further support the company’s upcoming cash flow and income. Notably, during Q1FY21, the company signed 29 agreements for approximately 2,300 GWh of renewable generation with corporate offtakes across all key industries.
  

• Growth in Dividend Distributions: The company reported a constant increase in its dividend payment, backed by stable cash flows, which is a key positive. From FY12 to FY21E, the company reported a 6% CAGR in the dividend distribution. Moreover, at the last closing price, the stock was offering a decent dividend yield of ~3.1 amid low interest rate environment.

Source: Company Presentation 

Q1FY21 Financial Highlights:

• The company declared its quarterly results, wherein the group posted revenue of USD 1,020 million, v/s USD 1,049 million in the previous corresponding period (pcp). During the quarter, actual generation stood at 13,828 GWh, as compared to 14,264 GWh in Q1 FY20.
• The group witnessed higher direct operating costs (USD 391 million v/s USD 326 million in Q1FY20) coupled with a tremendous surge in management service costs (USD 81 million, v/s USD 40 million in pcp). Meanwhile, other costs were significantly higher at USD 368 million, as compared to USD 337 million in Q1FY20.
• The group reported a net loss of USD 55 million, as compared to a profit of USD 89 million in Q1FY20.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Higher input costs may dampen the company’s profitability and cash flows in the coming quarters.

Valuation Methodology (Illustrative): Price to Cash Flow based

Stock Recommendation:

The company operates through a diversified portfolio of hydro, wind, solar and storage & others, which reduces the dependability on a particular segment. Moreover, more than 85% of the company’s income comes from the long-term contracts, which further ensures revenue stability. The company generated a higher fund from operations of USD 242 million in Q1FY21 compared to USD 217 million in the previous corresponding period (pcp). Adjusted EBITDA also stood higher at USD 489 million against USD 391 million in pcp, which also indicates improved operating performance. 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 Algonquin Power & Utilities Corp, Boralex Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 48.22 on July 06, 2021.

One-Year Technical Price Chart (as on July 06, 2021). Source: REFINITIV, Analysis by Kalkine Group

Polaris Infrastructure Inc.

Polaris Infrastructure Inc. (TSX: PIF) is engaged in the acquisition, exploration, development and operation of geothermal and hydroelectric energy projects. 

Key Highlights:

• An Income Play: The company has a strong history of stable dividend payment over the years, backed by stable cash flows, which is a key positive. In the first quarter of Q1FY21, the group paid a total dividend of USD 2.393 million, at par with USD 2.356 million in pcp. Moreover, the stock carries a dividend yield of ~3.6%, which looks decent considering the current interest rate scenario.

Five-year dividend distribution, Source: REFINITIV

• Sale of San Jacinto Facility: The company is planning to sell its San Jacinto Geothermal Facility situated in Nicaragua by the end of Q4FY21. This would be done in two tranches, and the expected gross proceeds are expected at around USD 400,000.

• Surge in Cash flows: The company reported massive growth in its cash from operations at USD 17.069 million in Q1FY21, from USD 8.898 million in pcp. The growth was supported by a gain on asset sale and improved working capital management.

Q1FY21 Financial Highlights:

• PIF announced its quarterly results, wherein the group reported its revenue of USD 15.679 million, lower than USD 20.727 million in the previous corresponding period (pcp). The slide was primarily due to lower revenue from the Nicaragua facility (USD 13.328 million in Q1FY21, v/s USD 18.138 million in pcp).
• Operating income stood at USD 4.479 million, lowered from USD 10.691 million in pcp due to lower revenue and increase in direct cost from Nicaragua facility.
• Adjusted EBITDA was recorded at USD 11.851 million, significantly lower than USD 17 million in pcp.
• The group reported a net loss of USD 0.912 million, as compared to a net profit of USD 4.391 million in pcp.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Due to the inherent nature of the operations, the group might witness setbacks from the global economic trends, risks related to local social, political, environmental, and economic conditions, as well as currency and inflation-related risks within the markets within which it operates.

Stock Recommendation:

The company is focusing its expansion across the Latin American markets, which provides strong growth visibility and is expected to support the company’s overall performance in the coming years. Moreover, the company’s operation comes under the essential services and operated in full capacity despite the ongoing pandemic, which is a key positive. Additionally, the renewable energy segment offers tremendous growth prospects as most of the developed countries are adopting lower carbon emission norms in order to curb pollution. On the valuation front, the stock is available at an EV to EBITDA multiples of 8.8x on next twelve months (NTM) basis, as compared to the industry (Utilities) median of 11.5x. Hence considering the above rationale, we recommend a ‘Hold’ rating on the stock at the last closing price of CAD 20.15 on July 06, 2021.

One-Year Technical Price Chart (as on July 06, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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.