In a July 31 research note, iA Securities analyst Jeremy Rosenfield reported that Brookfield Renewable Energy Partners L.P.'s (BEP.UN:TSX; BEP:NYSE) Q2/19 results were "roughly in line with estimates."
Rosenfield reviewed the quarter's numbers and the near-term outlook for the master limited partnership (MLP).
Strong output, including from hydroelectric assets in North America, which was about 7% higher than the long-term average, drove the quarterly results.
Consolidated EBITDA was $630 million, higher than iA Securities' forecast of $602 million and consensus' estimate of $598 million. Proportionate adjusted EBITDA was $400 million, between iA's $365 projection and consensus' $407 million forecast.
Q2/19 funds from operations came in at $0.74 per share, above both iA and consensus' estimates of $0.72 and $0.68 per share, respectively.
Another highlight of the quarterly update, Rosenfield pointed out, is that the development pipeline of MLP "continues to support organic growth," specifically an average annual 3–5% growth in funds from operations per share (FFO/share) and excluding mergers and acquisitions (M&A) activity. In the hopper are about 130 megawatts (MW) of under construction projects, another greater than 600 MW of construction-ready work and an additional roughly 220 MW of potential repowering jobs.
Supporting longer-term potential upside are the two recent investments, noted Rosenfield—Terraform Power's acquisition of a generation portfolio for about $720 million along with Brookfield and co-investors' acquisition of a 50% stake in X-Elio for about $500 million. These transactions could add about $30–40 million of incremental, annual run rate funds from operations beginning in 2020, "with upside from follow-on organic development."
Overall, increased cash flow resulting from organic growth and M&A should translate to a lower payout in the future, indicated Rosenfield. The MLP aims for average annual FFO/share growth of 6–11% and total yearly shareholder returns of 12–15%. Simultaneously, it "continues to drive its payout downward toward management's long-term sustainable 70% payout target (on FFO)."
Rosenfield concluded, "We continue to see Brookfield as a premium brand in the sector, supported by premium value hydro assets."
iA Securities maintained its Hold rating and its US$37 per share price target on Brookfield, whose stock is currently trading at around $36.07 per share.
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Disclosures from iA Securities, Brookfield Renewable Partners L.P., Research Update, July 31, 2019
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