Brookfield Renewable Partners L.P. 

Brookfield Renewable Partners L.P. (TSX: BEP.UN) is a renewable power generating company, which owns a portfolio of renewable power generating facilities, situated across North America, Latin America, and Europe. The company operates renewable power generating assets, which include conventional hydroelectric facilities and wind facilities located in North America, Latin America, and Europe.

Key Highlights:

• Strong Technical Indicators: The stock closed above the long -term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish price trend. Moreover, the stock of BEP.UN appreciated ~52% and ~62%, respectively in the last six months and nine months, respectively.                   

Source: Refinitiv (Thomson Reuters)

• Universal carbon reduction target to support future business: As most of the developed and developing countries are focusing on lowering the carbon-emission levels, we believe the room for the renewal energy would remain elevated in the foreseeable future. Moreover, due to lower costs, the demand for wind and solar sources are likely to remain elevated in the coming years.

Source: Company Presentation

• Improved Cash Flows: In the recent past, the company was battling with rising input costs, which has taken a toll on the profitability and resulted in a net loss in the previous quarter. However, in Q4FY20, the company has lowered its net loss and reported improved cash from operations of USD 279 million, as compared to USD 249 million in Q4FY19.

Q4FY20 Financial Highlights:

• The group announced its quarterly results, wherein the group posted revenue of USD 952 million, as compared to USD 965 million in the previous corresponding period (pcp).
• The group reported a higher increase in direct operating costs (USD 357 million versus USD 326 million in Q4FY19) and higher management service costs (USD 84 million, significantly higher than USD 44 million in Q4FY19). Other costs soared USD 307 million, as compared to USD 169 million in pcp.
• Net loss stood lower at USD 5 million, as compared to USD 90 million in pcp.
• The group posted cash and cash equivalents of USD 431 million, while total assets stood at USD 49,722 million.

Q4FY20 Income Statement highlights (Source: Company Reports)

Risks: The group has reported a net loss, despite a higher electricity generation, which is a reason for concern. Moreover, higher input costs would likely to dampen the company’s profitability and cash flows.

Stock Recommendation:

The US electricity generation and fossil fuel segment was down by ~5% and ~10% on y-o-y basis, while operations from renewable energy segment as a whole grew ~14%, which is a key positive and is likely to support the company’s future operations. Moreover, the renewable energy sector is likely to receive significant investments in the coming decade, while we believe, being a prominent name, the group would have the upper hand to take the opportunities arising from the sector. Considering the aforesaid facts, technical indicators and outlook, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 60.63 on February 9, 2021.

BEP.UN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Superior Plus Corp.

Superior Plus Corp. (TSX: SPB) is a Canada-based diversified business corporation which operates two separate businesses: Energy Distribution and Specialty Chemicals. The Company's Energy Distribution operating segment provides distribution, wholesale procurement, and related services concerning propane, heating oil and other refined fuels. The Specialty Chemicals segment is a supplier of sodium chlorate and technology to the pulp and paper industry.

Key highlights

• Event update: The company expects to release its 2020 fourth quarter and year-end results on Thursday, February 18, 2021 after market close.

• Acquired “Holden Oil”: Recently, the company acquired retail propane and distillate distribution company, Holden Oil (“Holden”), through its wholly-owned subsidiary. Holden has a good base of residential and commercial customers, and the company anticipates that this acquisition will provide excellent synergy opportunities with its existing operations in Massachusetts.

• An Income Play: The group continues with a healthy track record of dividend distribution. The company announced its cash dividend for the month of February 2021 of CAD0.06 per share payable on March 15, 2021, with a record date of February 28, 2021, which equates to an annual distribution of CAD 0.72 per unit. The stock was offering a dividend yield of ~5.6%, which is lucrative for the long-term investors, considering the current interest rate environment.

• The management's bullish stance: The management is positive on the performance and expects to demonstrate resiliency, as they remain focused on creating sustainable earnings growth for the future. The company reaffirmed the guidance regarding forecasted Adjusted EBITDA, which is likely to be in a range of CAD475 million to CAD515 million for FY 2020, looks inspiring.

• Attractive opportunity in the U.S Market: The Company foresees a significant opportunity in the U.S market to acquire numerous truck-in acquisitions and expand its footprint. Since most competitors have traditional distribution models, this provides the company with an opportunity to generate synergies by applying its operating model.

Financial overview of Q3 2020 (Amount In millions of CAD)

Source: Company

• In Q3 2020, the company posted revenue of CAD399.4 million, decreased by 11% as compared to CAD 450.1 million in the previous corresponding period, as the company generated lower revenues from all the operating segments.

• In Q3 2020, Gross profit decreased by 15%, to CAD 166.3 million, compared to CAD 195.0 million in Q3 2019, primarily due to low gross profit from Canadian Propane and Specialty Chemicals based on lower sales volumes and weaker market fundamentals, partially offset by slightly higher U.S. Propane gross profit.

• The company posted a net loss of CAD 21.4 million in Q3 2020, against a net loss of CAD 59.3 million in the pcp. The company managed to minimize the net loss with an unrealized gain on derivative financial instruments and lower operating expenses.

Risks associated with investment

The Company is exposed to many risk factors that, alone or cumulatively can affect its operations and financial health. Some of the risks include the lower demand for crude oil and natural gas, lower production, inflation, interest rates, fluctuations in foreign currency and exchange rates etc.

Valuation Methodology (Illustrative): Price to Cash Flow

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

Stock recommendation

The Company brought down its debt level with the help of procced received from Brookfield Investments and further expects its Total Debt to Adjusted EBITDA to remain within a range of 3.0x – 3.5x for FY2020. Based on a few acquisitions made by the Company in recent times and organic growth, the group also expects to generate an Adjusted EBITDA in a range of CAD 475 million to CAD 515 million for the full year 2020. Furthermore, from the long-term investor’s perspective, the stock offers a dividend yield of 5.6%, which is lucrative amid a low-interest-rate environment. Therefore, based on the above rationale and valuation, we have given a 'Hold' rating at the closing price of CAD 12.89 on February 8, 2021. We have considered Parkland Corp, Inter Pipeline Ltd, ARC Resources Ltd etc. as the peer group for comparison.

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.