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:

• An income Play: In the recent few years, the company distributed constant dividends to its shareholders, backed by stable cash flows. Notably, the company reported a dividend payment of USD 429 million in H1FY21, higher than the USD 365 million in pcp. The stock of BEP.Un carries a dividend yield of ~3.254% on an annualized basis, which looks attractive considering the persisting interest rate scenario.

Five years dividend distribution

• Improved profit margins: The company enjoys higher margins than its peers and reported EBITA margin and operating margin of 76.7% and 39.5%, respectively, in Q2FY21 higher than the industry median of 60.6% and 25.5%, respectively. Moreover, the company posted a net margin of 10.8% in Q2FY21, as compared to 3.4%. A higher margin indicates improved operational efficiency.
• Growing Traction for renewable energy: The group operates within the renewable energy segment and has a presence across the globe with a diversified portfolio of pure-play renewable assets that are supported by more than 3,000 established operators. Notably, the company operates across all the major segments like Hydroelectric, Solar, Energy transition and Wind. In the recent past, the sector (renewable) saw a constant increase in demand due to lower carbon emission norms targeted by developed nations. We expect the momentum to continue in the coming days, and the company is highly poised to take advantage of the growing demand.
  

Q2FY21 Financial Highlights:

• Un declared its quarterly results, wherein the group posted revenue of USD 1,019 million, improved from USD 942 million in the previous corresponding period (pcp). During the quarter, actual 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). Meanwhile, the company saw a tremendous surge in management service costs (USD 72 million, v/s USD 46 million in pcp). Notably, the company’s reported a lower interest expense at USD 246 million, as compared to USD 261 million in pcp.
• The corporation turned profitable and posted a net income of USD 110 million, as compared to a net loss of USD 10 million in Q2FY20.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: 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. 

Valuation Methodology (Illustrative): Price to CF based

Stock Recommendation:

The company has ample liquidity of USD 3.3 billion, with no meaningful near-term maturities. The above is sufficient to cater to the near-term capital requirements of the firm. The company’s operations are capital-intensive in nature, and hence, liquidity plays a pivotal role.  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 of BEP.UN at the last traded price of CAD 46.84 on October 22, 2021.

One-Year Technical Price Chart (as on October 22, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Absolute Software Corporation

Absolute Software Corporation (TSX: ABST) is engaged in next-generation Endpoint Resilience solutions and delivers a unique security platform that unites the power of self-healing devices, applications and network connectivity. 

Key Updates:

• Growth in ARR: The company reported constant growth in annual recurring revenue (ARR) supported by improved demand dynamics from Enterprise & Government, and Education segments. Moreover, growth in ARR determines the stability and is a key positive. On a quarterly basis, the company reported the highest ARR in Q4FY21.                                    

Source: Company Presentation

• Solid growth in cash flows: The company reported a jump in its cash flows and posted its cash from operations of USD 46.836 million in FY21, from USD 24.955 million in pcp. The growth was supported by improved working capital management. A higher cash flow denotes better liquidity of the firm.
• Higher dividend payment: Despite the ongoing tepid economic scenario, the company distributed a total dividend of USD 12.012 million in FY21, higher than USD 10.035 million in FY20. The above is backed by improved cash flows, which is a key positive. On October 20, 2021, the company reported a quarterly dividend of CAD 0.08 per share, payable on November 29, 2021.
• Result Update: The company would disclose its Q1FY22 result on November 09, 2021.

FY21 Financial Highlights:

• ABST declared its full-year result, wherein the company posted revenue of USD 120.784 million, as compared to USD 104.671 million in FY20. The increase was supported by decent growth from cloud services and managed professional services.
• Gross margin stood at USD 104.915 million, climbed from USD 91.581 million in the previous year, thanks to the elevated revenue, partially offset by higher cost of revenue.
• The quarter was marked by higher sales & marketing expenses, increase in research & development expenses and a higher general & administration expense.
• Net income was recorded at USD 3.732 million, as compared to USD 10.635 million in pcp.

FY21 Income Statement Highlights (Source: Company Report)

Risks:  Recently, the company reported an increase in input costs, and the continuation of the above trend is likely to dampen the company’s profit margins and cash flows. Moreover, the emergence of new players within the industry might lead to price competition and loss in market share.

Stock Recommendation:

The company reported excellent growth from the Cloud services segment, which resulted in ARR growth, which is a key positive. The company is expanding its product portfolio and would offer new services like new platform capabilities for IT and security teams which would automatically generate and distribute scheduled device reports, delivery of customizable historical reports, which would help the end uses to understand software and website usage patterns and web application adoption etc. We believe the above services would lead to enhanced customer satisfaction and subsequently lead to improved prospects for the company. The stock of ABST is available at an EV to Sales multiples of 2.4x on an NTM basis, lower than the industry (Technology) median of 4.3x. Hence, considering the aforesaid facts, we give a ‘Hold rating on the stock of ABST at the last traded price of CAD 14.04 on October 22, 2021.

One-Year Technical Price Chart (as on October 22, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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