National Bank Financial analyst Rupert Merer thinks higher power prices in Europe could lead to cash flow growth forBrookfield Renewable Partners L.P.
“Following the start of the military conflict in Ukraine, power prices have remained high across Europe,” he said. “We believe prices could remain higher in the future, with Europe looking to reduce its consumption of Russian natural gas. This should support future revenues for existing assets (BEP operates 3,700 MW in Europe) as well as for development assets.”
However, ahead of the May 6 release of its earnings report, he reduced his first-quarter funds from operations per unit forecast by 2 US cents to 42 US cents, above the 38-US-cent consensus, to account for lower-than-anticipated power generation from its s North American and Brazil hydro operations.
“Although we have modelled higher power prices in Q1, they could be stronger than our forecasts,” said Mr. Merer. “BEP’s results could also benefit from other gains realized on the sale of assets, which would introduce some moving parts. For the full year 2022, we have a slight decrease to our FFO forecast because of the interest charges on the recently issued $1 billion of debt on the Lievre facility and higher corporate costs related to an increase the share price. Once put to work, the excess capital raised from the Lievre facility should result in higher FFO forecasts.”
The analyst thinks that recent debt issuance could bring an update to BEP’s growth plans, noting: “In Q4, BEP highlighted 3.4 GW of projects that are construction ready or in advanced development, with a net $157-million in FFO potential (more than 10-per-cent growth), of which more than $20-million should reach COD by year-end. With Q1 results, among other things, we could hear about progress with construction on solar in India and repowering of its U.S. wind farm projects, which could contribute to results by year-end.”
Reiterating his “outperform” rating, Mr. Merer raised his target to US$41 from US$38 after increasing some long-term power price estimates across Europe, U.S and Canada. The average on the Street is US$40.89.