Brookfield Renewable Partners Non Voting Units BEP

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Renewable Power Sector Update and Q2/22 Earnings Preview

Q2/22 Renewable Output Mixed across Regions and Technologies

This note summarizes Q2/22 earnings expectations for equities in the Canadian renewable power sector. We refer readers to the larger Power & Utilities Q2/22 Preview and Sector Update industry bulletin, also published today, for a more detailed review of investment theses across our coverage universe. Besides presenting company-specific expectations for Q2/22 results, the larger report provides a review of recent equity performance and valuation trends.

Renewable independent power producer (IPP) share prices softened in recent months, but have outperformed broader equity indices. Since the end of March, share prices of Canadian renewable IPPs have declined by 7%, on average. The sector has underperformed large-cap Canada-listed utilities (up 2% since the end of Q1/22), but has outperformed broader equity indices. In our view, this reflects the sector's recession-resistant qualities. Since the end of Q1/22, the S&P/TSX Composite and S&P 500 have declined 16% and 15%, respectively. Boralex (up 6%) was the best-performing equity in our coverage universe over this period. On average, our coverage universe remains 28% below its January 2021 highs.

Our recommendations and target prices are unchanged; our sector stance remains OVERWEIGHT. Based on 12-month forward EV/EBITDA, the average trading multiple for our coverage universe has declined to 13.6x — in line with the long-term average of 13.5x, but well below the January 2021 peak of 17.4x. We believe that average valuations remain attractive, given companies' extension of advanced organic growth pipelines and ongoing momentum for renewable power development. Canadian renewable power IPPs have diverse growth prospects across technologies and geographies. We acknowledge that our implied potential return to target for Innergex is relatively thin for a BUY rating. We are planning to review our rating and target price when the company reports its Q2/22 results in early-August and provide updates on its outlook for growth. Our top picks in the sector are Brookfield Renewable, Boralex, and Northland Power.

A compressed Q2/22 earnings season for our coverage universe is expected to begin on August 3 with Boralex. Quarterly reporting season is expected to conclude when Algonquin Power and Northland Power report their results on August 11. In most cases, our forecasts are close to consensus expectations (typical, given contracted pricing and as most analysts base their quarterly estimates on long-term average generation levels provided by management teams).