Brookfield Renewable Is Well Positioned To Take Advantage of Current M&A Environment

Equity Analyst

Brett Castelli

Brookfield Renewable holds a well-diversified global portfolio of clean energy technologies assets. The company targets 12%-15% returns via a combination of organic growth and mergers and acquisitions. Brookfield takes a primarily contrarian approach to M&A.

Brookfield Renewable’s portfolio has historically been heavily weighted toward hydro generation, but that has changed in recent years given outsize growth in wind and solar. Hydro has decreased from approximately 80%-85% of the company five years ago to approximately 50% today. We expect hydro to continue to decline as a percentage of cash flow over time, given relatively limited growth opportunities when compared with wind and solar. Solar has increased to 15%-20% of the portfolio as of 2022 and management has outlined robust growth plans expecting it to be the largest energy source in the long term.

In addition to renewable energy assets, Brookfield Renewable expanded its investment scope in 2022 to include broader energy transition asset classes. These include novel areas such as carbon capture as well as traditional fossil fuel and nuclear power generation.

Brookfield Renewable’s geographic focus has historically been on North America and Latin America, but has also expanded in recent years to Europe and Asia. We expect the company to take a largely agnostic view toward geographies, opting to invest where the most attractive risk-adjusted returns are. However, the company has communicated it expects roughly 75% of its portfolio to be in developed markets with the remaining 25% in developing markets over the long term, in order to manage foreign exchange risks. 

Brookfield Renewable primarily invests in assets alongside Brookfield Asset Management’s private equity funds. This approach brings the benefit of increased scale, allowing the company to pursue larger opportunities, but results in frequent acquisitions and disposals. Management seeks to add value through aggressive cost and revenue optimization. The company was historically primarily an acquirer of operating assets, but has added development capabilities in recent years.

Business Strategy & Outlook

We do not award Brookfield Renewable an economic moat rating. We attribute much of Brookfield’s ability to earn excess returns to its strong capital allocation track record and not an underlying moat source. 

Brookfield Renewable employs an unusual structure in which it invests in assets alongside institutional investors via Brookfield private equity funds. This results in much of Brookfield Renewable’s growth being tied to mergers and acquisitions as opposed to organic growth. 

Development of renewable energy assets can be characterized by fierce competition and thin returns above cost of capital. Potential moat sources include intangible assets via long-term contracts and scale advantages, but are reserved for a select few companies, in our view. The industry enjoyed robust returns in its early days as competition was sparse and subsidies were high. However, recent years have seen sharply increased competition and compressed returns. This is coupled with limited barriers to entry--particularly for onshore renewables such as wind and solar--where the average project size and complexity is much smaller than traditional thermal plants. 

Brookfield’s renewable legacy is centered on its hard-to-replicate hydro assets (approximately 50% of 2022 cash flow). We believe hydropower plants have attractive moat characteristics, given their long useful lives of about 100 years, relatively low operating costs, and dispatch capabilities in the case of pumped hydro. In addition, new hydro assets are extremely difficult to build given needed regulatory approvals and locational constraints, supporting an efficient scale moat source. We particularly view this as the case for Brookfield’s North American hydro portfolio, which comprises a majority of its hydro capacity and is concentrated in the Northeast United States. Hydro’s favorable characteristics are partially offset by greater year-to-year resource variability than wind or solar. 

We do not believe Brookfield’s wind segment, which was about 23% of 2022 cash flow, possesses an economic moat. The company has 5.4 gigawatts of assets globally, which we do not view as large enough scale to demonstrate a cost advantage. For comparison, narrow-moat Nextera has 20 gigawatts of wind capacity in the U.S. alone. Brookfield’s wind portfolio does benefit from intangible assets in the form of contracts with counterparties for approximately 90% of generation in 2022, declining to 80% by 2026. This level of contract coverage should ensure consistent returns for Brookfield’s wind portfolio in the near term, but falls short of garnering a narrow-moat rating, in our view.

We do not believe Brookfield’s solar and energy transition segments warrant an economic moat. Brookfield is a relatively new entrant into the solar market, where we see fewer barriers to entry relative to wind given simple construction and smaller project sizes. 

Brookfield’s reliance on M&A coupled with our expectation for hydro, its moatiest segment, to decline as a percentage of cash flow over time results in our no-moat rating.

None

Economic Moat

Brookfield Renewable Partners

Brookfield Renewable Partners LP engages in owning a portfolio of renewable power generating facilities primarily in North America, Colombia, Brazil, Europe, India, and China.. It operates through following segments: Hydroelectric, Wind, Solar, Energy Transition, and Corporate. The Energy Transition segment distributes generation, pumped storage, cogeneration, and biomass. The company was founded on June 27, 2011 and is headquartered in Hamilton, Bermuda.

Earnings data Q4 2023

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Brookfield Renewable Partners LP engages in the ownership of a portfolio of renewable power and sustainable solution assets. It operates through the following segments: Hydroelectric, Wind, Utility-Scale Solar, Distributed Energy and Sustainable Solutions, and Corporate. The Distributed Energy and Sustainable Solutions segment includes distributed generation, pumped storage, renewable natural gas, carbon capture and storage, recycling, and cogeneration and biomass. The company was founded on June 27, 2011 and is headquartered in Hamilton, Bermuda.

Clearway Energy

NextEra Energy

These renewable energy stocks offer investors a chance to make some green while going green.

Renewable Energy Dividend Stocks

BROOKFIELD, News, March 01, 2023 (GLOBE NEWSWIRE) -- Brookfield Renewable (NYSE: BEP, BEPC; TSX: BEP.UN, BEPC) announced today the filing of its 2022 annual reports, including audited financial statements for the year ended December 31, 2022, on Forms 20-F with the SEC on EDGAR as well as with Canadian securities regulatory authorities on SEDAR.

Brookfield Renewable Completes Annual Filings

BROOKFIELD, News, Feb. 21, 2023 (GLOBE NEWSWIRE) -- Brookfield Renewable (NYSE: BEP, BEPC; TSX: BEP.UN, BEPC) notes the announcement today, February 22nd (Australian time), by Origin Energy Limited (“Origin”) (click here) disclosing that Brookfield Renewable and its institutional partners, alongside MidOcean Energy (“MidOcean”), an LNG company formed and managed by EIG, (collectively the “Consortium”) has updated its indictive, conditional and non-binding proposal to acquire all the outstanding shares of Origin for consideration of A$8.90 per share.

Brookfield Renewable Acknowledges Announcement by Origin Energy

Clean Energy Fuels

Enphase Energy

Hallador Energy

Natural Resource Partners

The bullish case for renewable energy stocks to buy centers on a math problem: what happens if we run out of critical raw materials? To be fair, many people have fear mongered about this topic and I'm not about to contribute to the cause.

7 Renewable Energy Stocks to Buy as Climate Change Takes Center Stage

AmerisourceBergen

Agree Realty

Analog Devices

Assurant

Allstate

Applied Materials

Artesian Resources

Aptargroup

Atlantic Union Bankshares Corp

Auburn National Bancorporation

Brookfield Asset Management

Baxter

Brunswick

Brookfield Infrastructure Partners L.P.

Badger Meter

Bank of Hawaii

Brookline Bancorp

Bankwell Financial Group

Cambridge Bancorp

Colony Bankcorp

Cboe Global Markets

Cabot

Cullen/Frost Bankers

A weekly summary of dividend activity for Dividend Champions, Contenders, and Challengers. Companies which changed their dividends.

Dividend Champion, Contender, And Challenger Highlights: Week Of February 19

Honeywell

These quality companies are worthy of being foundational holdings in an income-orientated portfolio.

3 Clean Energy Dividend Stocks That Are Passive Income Powerhouses

Brookfield Infrastructure

Brookfield Corp

An increasingly complex corporate structure should have investors at least paying closer attention.

Why It Could Be Time to Sell These Brookfield Stocks

Array Technologies

Orsted AS

Sunrun

The growth of renewable energy continues to create investment opportunities in renewable stocks. Environmental and economic factors drive the shift towards renewable energy sources as the cost of renewable energy technologies continues to fall.

7 Stocks to Buy for the Future of Renewable Energy

First Solar

Hannon Armstrong Sustainable Infrastructure Capital

Lazard

SunPower

Renewable energy is now a mature business that's good for investors.

Is Now the Time to Buy Renewable Energy Stocks?

Cameco

Constellation Energy Corp

Fusion Fuel Green

TransAlta

Although the issue remains a point of contention, increasingly, government agencies and a consensus of scientists have urged society to adopt a cleaner approach to infrastructure, thus boding well for green-focused energy stocks to buy. Most importantly, investors should consider this subsegment due to its lucrative profile.

7 Energy Stocks to Invest in for a Greener Portfolio

Business First Bancshares Inc.

First Republic

BEP, BFST and FRC have been added to the Zacks Rank #5 (Strong Sell) List on February 9, 2023.

New Strong Sell Stocks for February 9th

The headline numbers for Brookfield Renewable (BEP) give insight into how the company performed in the quarter ended December 2022, but it may be worthwhile to compare some of its key metrics to Wall Street estimates and the year-ago actuals.

Brookfield Renewable (BEP) Q4 Earnings: How Key Metrics Compare to Wall Street Estimates

The company produced record results last year and has more growth ahead.

This Top Energy Stock Continues To Showcase Why It's a Magnificent Buy

Apple

Archer-Daniels-Midland Company

American Electric Power Company

ALLETE

Ameriprise Financial

Air Products and Chemicals

Avista

Booz Allen Hamilton Hld

Black Hills

Bank of Marin Bancorp

BOK Financial

Sierra Bancorp

Commerce Bancshares

Church & Dwight

Cincinnati Financial

Civista Bancshares

Dividend Champion, Contender, And Challenger Highlights: Week Of February 5

Dominion Energy

Con Ed

Fluence Energy

New Fortress Energy

ONE Gas

Otter Tail

Income investors like utility stocks for their stability and generous dividends. Here are nine to watch in an uncertain market.

The 9 Best Utility Stocks to Buy Now

Brookfield Renewable Partners L.P. (NYSE:BEP ) Q4 2022 Earnings Conference Call February 3, 2023 8:30 AM ET Company Participants Connor Teskey - Chief Executive Officer Wyatt Hartley - Chief Financial Officer Julian Thomas - Managing Director and Head, Strategic Initiatives Conference Call Participants Sean Stewart - TD Securities Robert Hope - Scotiabank Rupert Merer - National Bank Financial Ben Pham - BMO Capital Markets Frederic Bastien - Raymond James Naji Baydoun - Industrial Alliance Securities Andrew Kuske - Credit Suisse Operator Good day and thank you for standing by.

Brookfield Renewable Partners L.P. (BEP) Q4 2022 Earnings Call Transcript

Brookfield Renewable Partners has been deflating since the January 2021 bubble top. The stock has been an income investor favorite and we have watched it for a long time as well.

Brookfield Renewable: 5.5% Hike Vs. The Deflating Bubble

All amounts in U.S. dollars unless otherwise indicated

Brookfield Renewable Announces Record Results and 5.5% Distribution Increase

Brookfield (BEP) is seeing favorable earnings estimate revision activity and has a positive Zacks Earnings ESP heading into earnings season.

Should You Buy Brookfield (BEP) Ahead of Earnings?

Autodesk

Evoqua Water Technologies

Brambles Ltd

Schnitzer Steel Industries

Stantec

Vestas Wind Systems A/S

One of the secondary consequences of Russia's invasion of Ukraine was the impact of environmental, social, and governance ( ESG ) initiatives, negatively affecting even the most highly rated ESG companies. Essentially, the war sparked immediate demand for weaponry, resulting in poor outcomes for the environment.

7 of the Most Highly Rated ESG Companies to Invest in Now

Brookfield Renewable Partners' (BEP) fourth-quarter earnings are likely to have benefited from contributions from acquired assets and organic growth projects.

What Awaits Brookfield Renewable (BEP) This Earnings Season?

Ormat Technologies

Stem, Inc

Eco Wave Power Global AB

Renewable energy stocks represent a necessary mechanism to address environmental viability.

News for Brookfield Renewable Partners Stock (BEP)