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:

• Operational Update: During the second quarter of FY21, the company progressed almost 7,500 megawatts of development projects through the construction and advanced stage permitting. Meanwhile, the group also added ~4,000 megawatts to its global development pipeline, and the current pipeline stands at around 31,000 megawatts. The above development projects are likely to contribute to the company’s future growth.
• Higher Dividend payment amidst turbulent times: The company paid a higher dividend of USD 429 million in H1FY21, as compared to USD 365 million in pcp. The above is impressive, as most of the companies are lowering their dividend distribution in order to retain their liquidity. Notably, the stock carries a dividend yield of ~3.1%, which is decent considering the current interest rate scenario.
  

Q2FY21 Financial Highlights:

• The group declared its quarterly results, wherein it posted revenue of USD 1,019 million, improved from USD 942 million in the previous corresponding period (pcp). During the quarter, power generation stood at 14,683 GWh, as compared to 13,264 GWh in Q2FY20.
• The group witnessed a marginal slide in direct operating costs (USD 307 million v/s USD 310 million in Q2FY20). On the flip side, the group saw a tremendous surge in management service costs (USD 72 million, v/s USD 46 million in pcp), while other costs soared to USD 36 million, as compared to USD 3 million in pcp. Notably, the company reported a lower interest expense at USD 246 million, as compared to USD 261 million in pcp.
• The company turned profitable and posted a net income of USD 110 million, as compared to a net loss of USD 10 million in pcp.

Source: Company Report

Risks: Higher input costs may 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.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company has ample liquidity of nearly USD 3.3 billion, which seems to be sufficient to meet both working capital requirements and upcoming investments. The company reported a 23% y-o-y increase in funds from operations to USD 268 million, well supported by improved performance from its high levels of asset availability coupled with growth from new acquisitions. 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). Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 48.44 on August 12, 2021.

One-Year Technical Price Chart (as on August 12, 2021). Source: REFINITIV, Analysis by Kalkine Group

Tecsys Inc

Tecsys Inc (TSX: TCS) is engaged in the development and sale of enterprise supply chain management software for distribution, warehousing, transportation logistics, point-of-use and order management.

Key Highlights:

• Impressive Financial metrics: The company reported a jump in its topline, profitability and a stable growth in its annual recurring revenue in the recent few years. Revenue grew 17.4%, while adjusted EBITDA soared 57.9% on a YoY basis in FY21. Consistent growth in average recurring revenue reaffirms revenue stability due to its repetitive nature. The management expects the momentum is likely to continue in the coming days due to rising adaptation of the technology systems by the companies in order to improve the overall efficiency and cost structure.
• Collaboration with Parkview Health: The company reported its agreement with Parkview Health, wherein the later would use Tecsys' Elite™ PIMS pharmacy solution, which is an inventory solution tools used for planning and reporting of logistics and supply chain services. This would help Parkview `to identify demand auto-generate replenishment orders, source best drug pricing benefits while ensuring regulatory compliance, and manage purchasing and vendor invoice matching through EDI data exchange.
• Consistent Growth in Dividend payment: Historically, the company reported a consistent growth in dividend distribution. Dividend per share increased to CAD 0.25 in FY21, from CAD 0.23 per share in FY20.

Source: Company Report

FY21 Financial Highlights:

• TCS announced its full-year result, wherein the company posted revenue of CAD 123.101 million, climbed from CAD 104.855 million in the previous corresponding period (pcp). The increase was driven by higher income from professional services and Clou­­­d, maintenance and subscription segment.
• Gross profit increased to CAD 60.630 million, from CAD 50.318 million in FY20. The growth was aided by the elevated total revenue, partially offset the higher cost of revenue (CAD 62.471 million v/s CAD 54.537 million in pcp).
• The quarter witnessed higher Sales and marketing costs, general and administration and research & development expenses. Profit from operations stood at CAD 10.681 million, surged from CAD 4.708 million in pcp.
• The company reported net profit at CAD 7.188 million, up from CAD 2.346 million in the previous corresponding period.

Source: Company Report

Risks: The company’s operations might be impacted due to price competition due to the arrival of new players in the industry coupled with a change in the preferences of clients, which might lead to a lower demand scenario.

Stock Recommendation:

The company offers enterprise supply chain management to its clients and its software is being used over 100 countries around the world. In the recent past the industry is witnessing a rise in demand for the interconnected ecosystem within the organizations, and we believe the company is highly poised to take advantage of it. On the valuation front, the stock is available at an EV to Sales multiple of 5.0x on NTM basis, compared to the industry (Technology) mean of 10.6x. Hence, considering the above facts, we recommend a ‘Hold’ rating on the stock of TCS at the closing price of CAD 52.68 on August 12, 2021.

One-Year Technical Price Chart (as on August 12, 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.