CIBCEQUITY RESEARCH
September 29, 2022 Company Update
BROOKFIELD RENEWABLE PARTNERS LP
Accelerating & Expanding—Investor Day Highlights
Our Conclusion
This year’s investor day affirmed our view that BEP is well positioned to not only continue to benefit from the accelerated growth in renewables but also the expanding investment opportunities around energy transition. BEP raised its equity deployment target, as expected—it sets targets to deploy $1.2B- $1.4B of equity annually, which may prove conservative. Consistent with our views, there’s now more visibility on FFO/sh growth—while BEP stated 8% annual growth through 2027 is secured and funded, we view “funded growth” more conservatively at 5%-7%, but with a path to 10%+ FFO/sh growth, supporting continued dividend growth (5%+). One governor on higher growth might be funding costs, but the company has multiple sources and can lean on its private funds to chase bigger M&A. BEP remains Outperformer-rated and we see it as strong total return story in the renewables sector.
Key Points
Industry Tailwinds & Transition Evolution. There were no big revelations
on strategy and the industry tailwinds are well known by investors. BEP’s
expansion and push for more development growth enabled by acquired or organic project originations have strengthened in the last several quarters and now give BEP more tangible growth. The expansion into more energy transition investments (CCS, green hydrogen, etc.) continues and expands the addressable investment opportunity. BEP noted renewable and energy transition investments could be $4T annually by 2030—clearly BEP is not starved for new investments and should hold its leadership position.
Capital Deployment & FFO Growth Outlook. Given industry tailwinds, BEP raised its annual equity deployment by $0.2B to $1.2B-$1.4B. This was expected (exceeding $1.2B this year) and may prove conservative
(dependant on M&A). With a much bigger development pipeline, inflation
escalators and higher power prices, BEP said it has 8% FFO/sh growth
through 2027 funded. That statement might be aggressive (e.g., power prices could moderate). Nevertheless, there’s more visibility today; we believe 10% FFO/sh growth is achievable (driving continued 5%+ dividend growth) and we have more conviction in BEP’s growth than a couple of years prior.
Funding Mix Could Evolve—Still In Good Shape. The balance sheet and
liquidity ($4B) remain strong. BEP did not provide an expected funding mix like in prior years, maybe because it is harder to define a set funding mix, given recent market volatility. Nevertheless last year’s funding mix is likely still a good frame of reference. New debt and preferred equity issuances might come down if coupons remain elevated, but higher FCF generation can offset. Asset sales will likely remain about 1/3 of the funding mix, albeit that source of funding isn’t as strong as 6-12 months ago, given some modest compression in deal multiples. Up-financings should remain a key element, particularly if BEP can lock in higher power prices. Finally, common equity may be needed, but more likely around larger, highly accretive deals.