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 Updates:

• Issuance of Subordinate Notes: Recently, the company reported the issuance of USD 350 million of fixed rate green perpetual subordinated notes, with a coupon rate of 4.625%. This would support the company’s overall liquidity.
• Growing Demand from Renewable: The company derives its income from the renewable energy sector, and the long-term outlook of the same remains bright, as most of the developing nations are leaning towards the clean energy sources. Hence, the opportunities are likely to be considerably high and we believe the company is highly poised to utilize the upcoming demand.

Source: Company Presentation

• Collaboration with Plug Power Inc.: On March 30, 2021, the company reported its collaboration with Plug Power Inc., and would build a green hydrogen production plant deploying 100% renewable energy from the company’s Brookfield Renewable’s Holtwood hydroelectric facility.

• Stable Dividend Growth: The company registered a consistent dividend growth during the last two decades, driven by stable cash flow generations. Notably, from 2000 to 2020, dividend distribution grew at A CAGR of ~6%, which is encouraging from the shareholders standpoint.

Source: Company Presentation 

• Result Updates: The company would disclose its first quarter FY21 result on May 04, 2021.

Q4FY20 Financial Highlights:

• UN declared its quarterly results, wherein the group posted revenue of USD 952 million, v/s USD 965 million in the previous corresponding period (pcp). During the quarter, total generation stood at 14,333 GWh, as compared to 13,850 GWh in Q4FY19.
• During the quarter, the group witnessed higher direct operating costs (USD 357 million v/s USD 326 million in Q4FY19) coupled with an increase in management service costs (USD 84 million, v/s USD 44 million in pcp). Meanwhile, other costs were significantly higher at USD 307 million, as compared to USD 169 million in Q4FY19.
• Net loss stood at USD 5 million, significantly lower from a net loss of USD 90 million in Q4FY19.
• The corporation recorded cash and cash equivalents of USD 431 million, while total assets stood at USD 49,722 million.

Q4FY20 Income Statement Highlights (Source: Company Report)

Risks: The group has reported a consistent surge in the debt component, which may dampen the overall financial flexibility of the group.

Valuation Methodology (Illustrative): P/CF based valuation.

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Stock Recommendation:

At the end of FY20, the group reported strong liquidity of USD 3.3 billion, which seems sufficient to support its working capital requirements and capital expenditure. Meanwhile, the company has no debt maturity in the next five years, which would support the company’s liquidity as well. The company is operating in renewable energy industry where the opportunities are likely to remain high. We have valued the stock using the Price to CF 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, Northland Power Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 52.08 on April 19, 2021.

One-Year Price Chart (as on April 19, 2021). Source: Refinitiv (Thomson Reuters)

Polaris Infrastructure Inc.

Polaris Infrastructure Inc. (TSX: PIF), is a Canada-based company, which is engaged in the acquisition, development, and operation of renewable energy projects in Latin America. It operates energy projects in Central and South America, which includes both Geothermal and Hydroelectric energy projects.

Key highlights

• Stable Cash flows: The company has a resilient business model and reported stable cash flows in the recent past, which is a key positive. The improvement was driven by improved working capital management, as the company’s operations and related supply chain activities were not materially impacted due to the pandemic.

Source: Company

• Impressive Production: During the Q4FY20, the group reported a surge in its production activities and reported a 19% y-o-y jump in production at 171,933 MWh, supported by higher production from the Canchayllo facility. Moreover, the company reported additional production from the two GASAC facilities. During the full-year, the group reported additional production from Peru, including the first annual production of 8 de Agosto and El Carmen facilities, which resulted in a 16% y-o-y increase of production to 662,893 MWh in FY20.

Source: Company

• Steady dividend distribution: The Company remains focused on maintaining a quarterly dividend. In FY 2020, it declared and paid USD 9.4 million in dividends and paid the twentieth consecutive quarterly dividend of USD 0.15 per outstanding common share on February 26, 2021. Moreover, the stock is offering a dividend yield of 3.91%, which is decent considering the current interest rate dynamics.

• Improved Liquidity and working capital: In FY 2020, the company increased their total cash balance to USD 60.0 million, against USD 32.6 million as on December 31, 2019. The working capital also enhanced to USD 45.3 million, against USD 13.6 million. An increase in cash was mainly due to the decrease in spending related to the construction of the GASAC facilities.

Source: Company

Financial overview of FY2020

Source: Company

• In FY 2020, the company reported revenue of USD 74.72 million, improved from USD 71.25 million in the previous corresponding period.
• Operating income stood at USD 56.89 million, significantly higher than USD 23.15 million in pcp, thanks to the higher income coupled with an impairment recovery, while an increase in direct costs remained a drag.
• Total earnings and comprehensive earnings stood at USD 38.98 million, increased from USD 10.04 million in pcp.

Risks associated with investment

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.

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The business model of the group is immune to the economic cycles and the group would continue to grow and diversify its operations within the Latin American region through renewable energy projects with attractive return profiles. Also, Latin America accommodates a unique renewable energy markets, which is expected to support the company’s operations as well. Moreover, the stock is offering a dividend yield of 3.91%, which is higher than the TSX composite’s yield of 3.08%. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing price of CAD 19.61 on April 19, 2021. We have considered Capital Power Corp, Boralex Inc. as the peer group for the comparison.

1-Year Price Chart (as on April 19, 2021). Source: Refinitiv (Thomson Reuters)

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.