Ryan Irvine Your Stock Our Take
Brookfield Renewable Partners L.P. (BEP.UN: TSX)
Current Price: $48.33
Market Cap: $13 billion
What does the company do?
Brookfield Renewable operates one of the world’s largest publicly traded, pure-play renewable power platforms, consisting of hydroelectric, wind, solar, and storage facilities in North America, South America, Europe, and Asia. The company’s total installed capacity is approximately 20,000 megawatts capacity with another 23,000 megawatts in its development pipeline. Investors can access the portfolio either through Brookfield Renewable Partners L.P. (NYSE: BEP; TSX: BEP.UN), a Bermuda-based limited partnership, or Brookfield Renewable Corporation (NYSE, TSX: BEPC), a Canadian corporation.
Key Points:
Brookfield Renewable participated in the renewable power boom last year but after hitting an all-time high of about $62 in January of this year, the stock price has pulled back 22% to $48.
Brookfield Renewables is largely following the general trend of the renewable and cleantech space. Over the past few years, and especially in 2020, there was a lot of excitement about renewables, tech, and other growth-oriented, new-age industries, even including space stocks. This year capital has flowed out of these segments and into some more traditional sectors like resources, banking, and industrials. The reason for this has been due to a combination of inflation fears and high valuations on last year’s big winners.
I personally don’t see this as cause for concern, at least in the long term. We look at every stock investment on a company-by-company basis. The underlying economic and environmental drivers supporting renewables growth remain unchanged. The only thing that has really changed is short-term investor sentiment. This is perfectly normal, as we expect investor excitement to fluctuate over time, and it’s also perfectly healthy because it drives out some of the speculative capital and creates potential opportunities to buy solid, long-term businesses at more attractive prices.
Speaking of financials, Brookfield Renewables released its first-quarter financial results on May 4th.
Recent Quarterly Financials
- The net power generated was up slightly in the quarter…approximately 3%, compared to the previous year.
- Funds from operations, or cash flow, per unit was up slightly as well to $0.38, compared to $0.37 in the previous year.
- Last year, in 2020, funds from operations per unit were $1.32 compared to $1.30 in 2019.
- The company does also report a normalized FFO, or cash flow, a figure which reflects what cash flow would be if the weather is consistent. Normalized FFO per unit increased 21% in Q1.
- The company attributes the growth in the period to contributions from its recent acquisition and also contractual inflationary adjustments.
- The long-term distribution growth target is expected to be between 5% and 9%; the company increased the distribution by 5% at the start of the year.
Conclusion
I think Brookfield Renewable is a fine company. I would like to see better growth in cash flow per unit but the stability of the business and sustainability of the distribution should be very strong. The company pays a yield of 3% yield is targeting distribution growth of 5% to 9% per year. Over time, we would expect about an 8% to 12% average total return annually.
One thing I find interesting about Brookfield Renewables is that their long-term contracts contain some form of inflation escalator. So when inflation increases, the company will receive a commensurate increase in revenue and cash flow. This is an advantageous structure in an inflationary environment.
We have another Brookfield company under coverage in our Income Research that we prefer, Brookfield Infrastructure. We just recently updated the company to our clients and find that has better diversification in its business, better growth and also has inflation escalators structured into its contracts.