CIBC UpgradeEQUITY RESEARCH
February 6, 2022 Earnings Update
BROOKFIELD RENEWABLE PARTNERS LP
Recent Deals And Funding Plan Execution Give Us Increased
Confidence On Growth Outlook
Our Conclusion
Solid execution on growth initiatives, an enhanced development pipeline
(with favourable returns), the ability to surface value from existing assets and a funding plan that can avoid dilutive equity issuances support our positive view on BEP. We made modest positive estimate revisions. Our DCF-based price target rounds up to US$40 (was US$39). BEP remains Outperformer rated.
Key Points
Greater Growth Visibility With Expanded Development Pipeline. BEP’s
total and advanced development pipelines increased 72% and 90% from last quarter’s disclosure thanks to some opportunistic acquisitions, notably the 20GW Urban Grid portfolio (link to note). BEP now expects to build out
roughly 8GW-9GW in the next three years, implying ~3GW per year, which
could triple the ~1GW and $20MM of FFO added in 2021 (we conservatively assume ~2GW). The current diversified (region + technology) organic growth pipeline could see BEP hit or exceed the upper end of the 3%-5% FFO/unit growth expected from development activities. That growth plus escalators alone should get BEP above 6%, with M&A providing upside. Overall, we have increased confidence in BEP’s growth profile and ability to deploy $1.0B to $1.2B of equity per year (it hit that range in the last 12 months).
Delivering On Funding Plan. The recent recontracting of the Lievre hydro
facility (attractive price, 40-year term, strong counterparty) allowed BEP to re- lever this asset, surfacing C$1B of capital. All told, debt refinancings netted BEP $1.5B in 2021, which complements capital raised from perpetual note financings and asset sales. Overall, BEP reiterated its funding plans from the investor day and ability to fund $5B-$6B without external equity. The ability to avoid equity issuances is an increasingly important advantage given recent pullback in share prices in the sector, plus it has the support of committed capital from investors in private funds (not equity-market sensitive). In our view, access to and cost of capital are unlikely to limit growth.
Five Percent Dividend Increase. BEP announced a 5% dividend increase,
consistent with our expectations and increases in recent years. While
FFO/unit growth was higher (10% in 2021), BEP continues with increases at the lower end of its 5%-9% range as it looks to moderate payout (normalized FFO payout ratio <80% and trending to 70% long-term target) and redeploy cash into growth. We view BEP as one of the most attractive dividend growth stories in our coverage; arguably it’s a better alternative to many other regulated utilities we cover (BEP has higher yield and/or higher growth).
Estimates & Valuation. Our updated estimates reflect Q4 results and minor
forecast changes, including asset additions (M&A + development), updated pricing, interest expense and operating cost assumptions. Our long-term forecast ticks higher and our DCF-based price target goes to US$40 (was US$39).