NYSE:BEP - Post Discussion
Post by
retiredcf on Oct 18, 2022 7:55am
TD 2
Renewable Power Sector Q3/22 Earnings Preview
Q3/22 Renewable Output Mixed Across Technologies and Regions
This note summarizes Q3/22 earnings expectations for equities in the Canadian renewable power sector. We refer readers to the larger Power & Utilities Q3/22 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 Q3/22 results, the larger report provides a review of recent equity performance and valuation trends.
It remains our view that recent share-price declines for our coverage universe primarily reflect concerns regarding rising interest rates and the potential for a broader economic slowdown. Since the end of June, share prices of Canadian renewable IPPs have declined by 14%, on average. The sector has modestly underperformed large-cap Canada-listed utilities (down 11% since the end of Q2/22), and has recently underperformed broader equity indices. Since the end of Q2/22, the S&P/TSX Composite and S&P 500 have declined 1% and 3%, respectively. Northland Power (flat since June) was the best-performing equity in our coverage universe over this period. On average, share prices in our coverage universe are 21% below their recent highs in March 2022.
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 11.7x, from 15.1x at the end of March. This is below the long-term average of 13.5x, and well-below the January 2021 peak of 17.4x. We believe that average valuations remain at attractive levels, given companies' extension of advanced organic growth pipelines, ongoing momentum for renewable power development, and the group's defensive attributes. We acknowledge that our implied potential returns to target for Innergex and TransAlta Renewables are robust for HOLD ratings. We are planning to review our ratings and target prices when these companies report Q3/22 results in early November. Our top pick in the sector is Brookfield Renewable.
A compressed Q3/22 earnings season for our coverage universe is expected to start on November 4 with Brookfield Renewable and TransAlta Renewables. Quarterly reporting season is expected to conclude on November 10, when we estimate Algonquin Power will report its results. 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).
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