Krisana Sennok
Brookfield Renewable Corporation (NYSE:BEPC) and its twin Brookfield Renewable Partners (BEP) have been considered one of the star performers through the first 12 months of the COVID-19 pandemic because the EV sector basically clearly outperformed the broad markets and drew enormous interest and capital from investors. The stock surged almost 75% in 2020 and the sharp COVID-19 selloff in late March provided top-of-the-line ever buying opportunities for investors.
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Just because the sun was shining vibrant on Brookfield Renewable in 2020, the sun has set because the starting of 2021. When Brookfield Renewable listed as a C-Corp under the BEPC ticker, BEPC initially clearly outperformed BEP despite each firms being economically equivalent. The one difference is that BEP is a publicly traded partnership sitting in Bermuda whereas BEPC is a Canadian corporation listed on NYSE and TSX as a way to “provide investors with greater flexibility in how they access BEP’s globally diversified portfolio of high-quality renewable power assets”.
The stock hit all-time low at the top of 2022 with the worth collapsing to $27.19 but has already recovered a good bit and is now above $30. Despite the fact that the underside is seemingly in even today’s price provides very attractive long-term buying opportunities and the case may be made for a generational buying opportunity.
Data by YCharts
What is happening at Brookfield Renewable?
Brookfield’s latest earnings were reported in November 2022 for the third quarter of 2022, which showed strong Y/Y FFO growth of 15%. Quarterly highlights include:
- Securing investments totaling $6 billion across various transactions and regions.
- Delivering an incremental 2,600-gigawatt hours of unpolluted energy annually, including 1,200-gigawatt hours to corporate offtakers.
- Commissioning roughly 2,700 megawatts of recent projects, including commencing the commissioning of a 1,200-megawatt solar facility in Brazil.
- Executing on a 19,000-megawatt under-construction and advanced-stage pipeline, which is predicted to contribute roughly $260 million of FFO annually.
- Completing or advancing $1.4 billion of asset recycling activities.
Brookfield’s operating results were strong and its backlog is well-equipped. The corporate is making strong progress towards its long-term plan:
… we imagine the longer term opportunities for investing in clean power and the energy transition might be even greater than they’re today. And our scale, track record and global capabilities position us as a partner of alternative and decarbonization
Source: Brookfield Renewables Q3/2022 Earnings Call
The 12 months 2022 has seen several growth initiatives by Brookfield Renewables and heavy M&A activities as the corporate is executing on its quest towards global decarbonization. Brookfield Renewables is a really lively player within the M&An area as it’s the world’s largest renewables company, with an around 24 GW operating energy portfolio, and executing on these external growth opportunities is vital for the corporate to expand its diversified clean energy business. The corporate’s project development pipeline for carbon capture and storage now exceeds 100GW and thus provides ample opportunity for multi-decade growth.
Brookfield Renewables Portfolio (Investor Presentation)
Brookfield Renewables biggest opportunity this 12 months got here last month when “a consortium led by Brookfield Renewable submitted an A$18.4B non-binding buyout offer for Origin Energy, Australia’s second largest power producer and energy retailer.”
If the deal goes through, it will be the most important buyout of an Australian company by private equity and the most important deal within the country this 12 months. Brookfield and MidOcean see big opportunities within the transition to cleaner energy in Australia and imagine Origin’s assets offer a very good technique to put money into this sector. The deal requires approval from the Australian Competition and Consumer Commission and the Foreign Investment Review Board to proceed.
By acquiring Origin’s energy markets business, Brookfield plans to take a position a further AUD 20 billion ($13.1 billion) by 2030 to construct renewable energy and storage capability and speed up Origin’s transition to scrub energy, helping Australia reach its emissions-reduction targets faster.
If Australia is serious about reaching its decarbonization targets I feel they need to accept that deal when the world’s biggest renewables company is joining the mission to take a position tens of billions of capital into the country creating jobs, funding growth and helping the federal government achieve its policies.
Brookfield is making these investments via its massive energy transition fund and the identical applies to its recent $8B acquisition of Westinghouse Electric where Brookfield teamed up with nuclear fuel supplier Cameco. As for Brookfield it is essentially an intra-party cope with Brookfield Business Partners which acquired Westinghouse out of bankruptcy in 2018 and is now expected to earn a 60% IRR and $4.5B of total profit if the deal goes through. For Brookfield Renewables it’s a giant bet on a prosperous nuclear future and despite the fact that only a few ignorant countries like Germany are phasing out nuclear energy, worldwide, nuclear energy is on the rise and I’m a firm believer in that energy source. It offers the very best balance between costs, reliability and CO2 emissions and is a key enabler of the energy transition. Sarcastically, while the German government, acting against the interests of the people, is exiting nuclear energy by April 2023, Germany’s neighbors like France and Poland are heavily investing into it – and can then eventually also sell a few of that power to Germany.
Probably the most difficult thing is definitely constructing these nuclear power plants (admittedly the disposal of nuclear waste can also be a challenge). Construction normally takes a few years or perhaps a decade and eventual completion is commonly way off the initial schedule. The nice thing is Brookfield Renewable’s entry point into nuclear power generation isn’t subject to those risks as Westinghouse solely acts as a service provider and doesn’t tackle any commodity, construction or significant fixed price contract risk, nor does it have any exposure to nuclear liabilities because it operates in countries where those liabilities for nuclear accidents lies with the plant operators
Source: Brookfield Renewables Q3/2022 Earnings Call
Having shed more light on arguably crucial growth driver for Brookfield Renewable, namely M&A activity, let’s briefly outline the opposite three subsequently:
- Inflation escalation: Based on existing contracts with its customers, Brookfield expects no less than 2% to three% annual FFO per share growth by increasing rates accordingly. That inflation estimate between 2% and three% appears very conservative given recent inflationary developments, and thus there could be room for more. It is going to be interesting to see how management comments on inflation through the next earnings call as inflation has run extremely hot this 12 months and the query is what they expect it to be over the following 4-year term.
- Margin enhancement: As Brookfield Renewable continues to grow, that expanding scale should help reduce costs and enhance margins, thereby adding one other 2% to 4% to annual FFO growth over the following 5-year term. Also, with energy prices on the rise, latest contracts or renewed contracts, should carry higher rates as well.
- Development pipeline: As mentioned above, Brookfield Renewable is continually seeking to expand its operating portfolio and its pipeline, but at the identical time it is usually busy in moving pipeline projects through the varied stages from planning and development to production. Depending on the pace, the corporate targets to contribute 3% to five% to annual FFO per share growth by developing renewable energy capability.
Brookfield Renewable Growth Levers (Investor Relations)
Overall, these three growth levers coupled with previously mentioned M&A activities should drive annual FFO per share growth in excess of 10% and thereby add one other successful chapter to the stock’s long-term track record of strong performance. Management already confirmed that it had locked in no less than 8% annual FFO per share growth, and thus with increasing confidence, investors can bank on double-digit FFO growth into the 12 months 2027.
What’s in it for Dividend Investors
Brookfield Renewable features a formidable dividend track record with a protracted streak of consecutive dividend increases. During the last couple of years, the distribution has been growing at a 6% clip and this form of pace is predicted to proceed as Brookfield is working towards its goal of achieving a 70% FFO-based payout ratio.
Dividend Raise (SeekingAlpha)
The most recent hike to the distribution got here in February 2022 when the corporate announced one other 5.3% Y/Y increase. These 5% hikes have turn into the norm during the last couple of years because the
Overall, over the following 5 years, Brookfield Renewable has strong visibility on double-digit FFO per-unit growth, which ultimately leaves little doubt that this streak of no less than 5% annual distribution raises will easily proceed. The corporate itself is targeting to grow its distributions by 5% to 9% annually and, given strong YTD performance in 2022, I believe that the following hike in only a couple of weeks may very well be greater than the 5% we got used to as the corporate is working towards reaching its goal payout ratio.
Investor Takeaway
Brookfield Renewable Partners is a number one global renewable energy company with a various portfolio of hydroelectric, wind, and solar assets. As concern about climate change and the necessity to transition to cleaner sources of energy increases, demand for renewable energy is predicted to proceed growing. This presents a powerful growth opportunity for firms like Brookfield Renewable Partners.
Brookfield Renewable Partners has a track record of strong financial performance, with consistent revenue and earnings growth over the past several years. The corporate also has a solid balance sheet, with a powerful credit standing and low levels of debt.
Brookfield Renewable Partners has a powerful track record of dividend growth, and currently offers a beautiful dividend yield in excess of 4%. This makes it an appealing option for income-focused investors.
The stock was an absolute bargain for probably the most a part of the last decade as despite strong operating results there simply wasn’t that much interest to take a position into EV and renewable stocks. That every one modified with the COVID-19 pandemic by some means, and although the resulting euphoria has catapulted the stock to latest all-time highs, the present sell-off gives investors an above 4% protected dividend yield that is predicted to grow at a really solid pace in the longer term.
Today’s stock price presents a generational buying opportunity and as soon as fears about elevated rates of interest and better cost of debt begin to subside I’m confident the corporate’s stock price will get well and return to its long-term growth trajectory in-line with annual double-digit FFO growth.