UpgradeThese are obviously US$ targets. GLTA
IA Capital Markets analyst Naji Baydoun thinks the sustainable growth potential for Brookfield Renewable Partners L.P. seems underappreciated by investors and could support further upside for its shares.
In a research report released Monday, he said its development pipeline has “meaningfully” expanded since 2018 after it “successfully executed on several transactions that have positioned it to significantly expand its greenfield project capabilities and organic growth capacity.” That has led it to increase its development activities “considerably” over the last two years, supported by the growth in the its pipeline of prospects.
“BEP currently targets 3-5 per cent per year FFO [funds from operations] per share growth from development activities; at this time, we estimate that 1.25-1.50GW per year of new gross capacity additions via project development could drive 2-4 per cent per year FFO/share growth,” said Mr. Baydoun. “However, given BEP’s (1) current development pipeline position and heightened focus on development, (2) unparalleled access to capital to execute on its growth ambitions, and (3) proven management team and track record, we see the potential for further near-term acceleration of project development activities, which could help the Company achieve its organic growth objectives. From a longer-term perspective, we see the potential for BEP’s current development pipeline (i.e., excluding new prospects) to underpin 3-4 per cent of sustainable annual FFO/share growth. Overall, we estimate that BEP’s current development pipeline could be worth $6-8 per share.”
The analyst expects Brookfield Renewable’s capital allocation to remain focused on M&A activity, however he thinks its development activities are “likely to represent a greater portion of its growth profile going forward.”
“In our view, BEP’s competitive advantages (global scale, operating expertise, development capabilities, selectivity/flexibility in pursuing new growth, proven track record, flexible funding model) position the Company well to successfully execute on its development and growth ambitions,” he said. “Brookfield’s upcoming Investor Day could provide investors with greater visibility on the overall outlook (including organic growth initiatives), which could in turn act as a positive catalyst for the shares/estimates/valuation.”
Reaffirming his “buy” rating for its stock, he raised his target to $50 from $48 due largely to an increased value ascribed to its development pipeline. The average target on the Street is $42.83.
“We continue to like BEP’s (1) high-quality global renewable power platform (more than 20GW), (2) high degree of contracted cash flows (65-85 per cent through 2025), (3) long-term organic and M&A-based growth strategy (6.8GW under construction and in advanced development, and more than 30GW of prospects), and (4) attractive income characteristics (3.0-per-cent yield and a 5-9 per cent per year dividend growth target),” said Mr. Baydoun.