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