Brookfield Renewable Partners L.P.

A Defensive Business model with a Decent Business Prospect: Brookfield Renewable Partners L.P. (TSX: BEP.UN) is a renewable power company with an installed capacity of 19,000 MW. Brookfield Renewable is a pure-play renewable power company with its portfolio consisting of hydro, solar, wind, distributed generation and storage capacity. 

The Company reported a quarterly distribution of US$ 0.5425 per LP Unit, payable on June 30, 2020. The Company maintained favorable liquidity level and reported US$ 3 billion of total liquidity available to support short-term working capital requirements to continue its operations. The Company further targets a sustainable distribution with an average growth of 5% to 9% annually.

Q1FY20 Financial Highlights: For the period ended March 31, 2020, the group’s revenue stood at US$ 792 million, as compared to US$ 825 million in pcp. The decline was due to lower power prices in North America. The Company reported a long-term average generation of 14,151 GWh, as compared to 13,493 GWh in Q1FY19. Net income stood at US$ 120 million, as compared to US$ 153 million, primarily due to an increase in direct operating costs and depreciation, partially supported by lower interest expense and income tax. The Company exited the quarter with cash and cash equivalents of US$ 294 million and total assets of US$ 32,663 million.  Funds from operations stood at US$ 217 million, as compared to US$ 227 in pcp.

Q1FY20 Income Statement Highlight (Source: Company Reports)

Valuation Methodology:  Price/CF based Relative Valuation

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock remained resilient over the last one year and generated ~59% return, while broader markets remained negative. The Company offers renewable power and has a diversified clientele primarily from public enterprises and esteemed private enterprise which ensures downside protection and safeguarding the Company’s cash flows. The power sector categorized under the ‘essential services’ which makes it a recession-free business. Investors choose these categories of businesses to protect their portfolio. The stock offers an attractive dividend yield ratio of 4.546% on an annualized basis, which is impressive looking at the current interest-rate scenario. We have valued the stock using Price to Cash-flow based relative valuation approach and taken peers like TransAlta Renewables Inc (TSX: RNW), Hydro One Ltd (TSX: H), TerraForm Power Inc (NYSE: TERP)  etc. and arrived at a target price offering a double-digit upside potential (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 66.87 as on May 7, 2020.

BEP One-Year Daily Price Chart (Source: Thomson Reuters)

goeasy Ltd

Consumer Loan growth Lead to Improve Business-prospect: goeasy Ltd (TSX: GSY) provides lending and leasing services to non-prime Canadians through its easy home and easy financial business segments. 

The group has declared a quarterly dividend of CAD 0.45 per share payable on July 10, 2020. During the First quarter of FY20, the Company repurchased 204,150 common shares at a price consideration of CAD 48.98.

Q1FY20 Financial Highlights: For the period ended March 2020, GSY came up with a decent number and posted revenue of CAD 167.20 million, reflecting a stellar 19.5% y-o-y growth, amidst the global slowdown on account of COVID 19 pandemic. The growth was aided by a strong momentum from interest income and commission earned, partly offset by lower lease revenue numbers. The business reported robust growth in gross consumer loans receivable and in the easy financial segment’s revenue. Operating income stood higher at CAD 44.22 million, as compared to CAD 38.81 million in pcp. The increase was primarily attributed to lower depreciation and amortization expense., while higher Salaries and benefits, Bad debts remained a drag. Net income for the first quarter of FY20 soared 20.3% on y-o-y basis to CAD 21.98 million.

Stock Recommendation: The stock of GSY has corrected ~28% in the last one year and currently trading near the lower band of its 52-week trading range of CAD 80.62 and CAD 21.08. The Company has remained as a consistent performer with 40^th successive quarter of same-store sales growth and with a history of paying a dividend for the last 16 years. The Company has taken a prudent measure of focusing on digital lending capabilities on the backdrop of the shutdown of stores. The Company remain fully functional during the pandemic and operating with its full workforce, which is commendable. We believe, the operating performance of the Company to improve, aided by retail credit growth due to the current slowdown in the industry. The stock is currently trading above its 20 days simple moving average (SMA)of CAD 38.93. The stock is currently trading at a forward PE multiple of 6.1x, which is well below the industry average of 10.6x. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of CAD 45.35 as on May 7, 2020.

GSY One-Year Daily Price Chart (Source: Thomson Reuters)

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