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Renewable Energy MLP Announces Acquisition, Dividend Increase
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The specifics of both moves are presented in an iA Securities report.

In a Jan. 13 research note, analyst Jeremy Rosenfield reported that iA Securities raised its target price on Brookfield Renewable Energy Partners L.P. (BEP.UN:TSX) to CA$47 per share from CA$44. This comes after the master limited partnership (MLP) announced two pieces of news: It intends to take over Terraform Power Inc., and it plans to increase its dividend by 5%. "The full integration of Terraform into the Brookfield fold would be accretive to our estimates and valuation," Rosenfield noted.

He outlined the acquisition. Brookfield would purchase the remaining 38% interest in Terraform Power Inc. that it does not already own, for US$1.5 billion. It would be an all share arrangement in which each acquired Terraform share would get swapped into new Brookfield shares at an exchange ratio of 0.36 Brookfield unit:1 Terraform share.

"The transaction implies a value for Terraform of about US$17.31 per share (an approximately 11% premium to the January 10, 2020 closing price, prior to the announcement)," the analyst indicated.

If approved, the deal would close in mid-2020 with the Brookfield share distribution occurring at that time.

Rosenfield presented the implications of the deal. For one, it would result in an initial funds from operations contribution to Brookfield of about US$0.15–0.20 per unit, or a roughly 5–7% accretion, according to iA Securities estimates. Two, it would provide Brookfield with a larger footprint in the solar and wind markets in North America and Western Europe.

As for the MLP's dividend, Brookfield plans to raise it to US$2.17 per unit from US$2.06. "The dividend increase is at the lower end of Brookfield's 5–9% annual dividend growth target, in line with our forecast as Brookfield aims to create headroom versus its dividend payout target," commented Rosenfield.

He concluded the report by highlighting Brookfield's compelling aspects. They are its high-quality global renewable power platform, its elevated level of contracted cash flows, its long-term strategy for growth and its attractive income characteristics. IA Securities has a Hold rating on Brookfield.


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Disclosures from iA Securities, Brookfield Renewable Partners L.P., Research Update, January 13, 2020

Conflicts of Interest: The research analyst and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of iA Securities, which may include the profitability of investment banking and related services. In the normal course of its business, iA Securities may provide financial advisory services for the issuers mentioned in this report. iA Securities may buy from or sell to customers the securities of issuers mentioned in this report on a principal basis.

Analyst's Certification: Each iA Securities research analyst whose name appears on the front page of this research report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst's personal views about the issuer and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Analyst Trading: iA Securities permits analysts to own and trade in the securities and or the derivatives of the issuer under their research coverage, subject to the following restrictions. No trades can be executed in anticipation of coverage for a period of 30 days prior to the issuance of the report and 5 days after the dissemination of the report to our clients. For a change in recommendation, no trading is allowed for a period of 24 hours after the dissemination of such information to our clients. A transaction against an analyst's recommendation can only be executed for a reason unrelated to the outlook of the stock for the issuer and with the prior approval of the Director of Research and the Chief Compliance Officer.

Company Related Disclosures:
--In the past 12 months, Industrial Alliance Securities Inc. has managed or co-managed a public offering of securities for the issuer.
--The analyst has visited the issuer’s operations. No payment or reimbursement was received from the issuer for the associated travel costs.

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