In a separate note, seeing “high-quality growth on sale,” Mr. Hope (Scotia Capital) raised his rating for Brookfield Renewable Partners LP(BEP-N, BEP.UN-T) to “sector outperform” from “sector perform,” touting a “strong” growth outlook.
“We have long liked Brookfield Renewable’s collection of high-quality and diversified renewable assets and view the shares as an attractive way to play the de-carbonization theme,” he said. “We believe the company has a wide and deep pool of attractive opportunities, which should generate above-average cash flow growth. In fact, we see Brookfield Renewable’s growth outlook as quite a bit stronger than the majority of our coverage universe. The shares of the Canadian renewable power group were under pressure in 2021, with the December weakness likely in part related to tax loss selling. At recent levels, we believe Brookfield Renewable’s units are attractively valued and provide an entry point for those who have long liked the business but were previously held back by valuation.”
Mr. Hope is projecting funds from operations per unit growth in 2022 of 11 per cent followed by gains of 9 per cent and 7 per cent in 2023 and 2024, respectively. He said that forecast is at the upper end of his coverage universe.
“In fact, we see a long runway of high-single-digit / low-double-digit cash flow growth for Brookfield Renewable, whereas our more energy-focused coverage (pipeline, midstream) have moderated their growth outlooks in recent years,” he said. “Brookfield Renewable is uniquely positioned to benefit from the many tailwinds related to renewable power growth, which show no signs of abating over the coming decade. In fact, over the next five years, Brookfield’s management is targeting average annual 10-per-cent-plus FFO per unit growth, which is driven by improving returns on its existing assets (3-6 per cent), developing new projects (3-5 per cent), and up to 9-per-cent growth from its M&A activities. The company recently increased its targeted annual equity deployment to $1.0-$1.2-billion (from $0.8-$1.0-billion), which could provide some upside to our forecasts. The increase is based off of the wealth of opportunities that the company is seeing and supported by the launch of the Brookfield Global Transition Fund (BGTF) that could be up to $15-billion.”
Seeing an “attractive” entry point to its shares, Mr. Hope kept a US$42 target. That falls narrowly below the US$43.68 average.
“Renewable power stocks were out of favour in 2021 with the Canadian peer group declining a median of 17 per cent, while Brookfield Renewable declined by 17 per cent,” he said. “We see this driven by a variety of factors, including: (1) valuations coming off of lofty levels following a strong 2020, (2) concerns regarding inflation impacting growth outlooks (which we believe is less of an issue for BEP), (3) concerns about policy direction in the U.S., and (4) rotation out of defensive stocks into more torquey energy names. That said, in the majority of our marketing meetings in late 2021, we saw significant interest in the space. It appears that there is significant demand to invest in the renewable space, though the consistent downtrend through 2021 was holding some back.”