Brookfield Renewable Earnings: Acquisition Activity Remains Robust as Origin Deal Hangs in Limbo

We maintain our $31 (CAD 42) fair value estimate for Brookfield Renewable Partners BEP following third-quarter results. Additionally, we maintain our $32 (CAD 43) fair value estimate for Brookfield Renewable Corp. We view shares as undervalued.

Brookfield Renewable Partners reported funds from operations per unit up 4% year on year in the third quarter. Results were diminished by below-average generation within the company’s South American hydro portfolio, which saw generation below the long-term average. We place little emphasis on quarterly generation variations within the hydro portfolio, as we expect these to even out over time. Results were also weighed down by adjustments to the regulated price earned by the company’s Spanish wind and solar assets, which was partially offset by the gain on the sale of a wind asset.

Brookfield Renewable has committed to invest $450 million in acquisitions during the quarter as it continues to see elevated opportunity levels given the recent market volatility. All previously announced acquisitions are progressing well, with the exception of Origin Energy. Brookfield Renewable recently sweetened its offer for the company, but Origin’s largest shareholder, AustralianSuper, deemed it below its estimate of long-term value. A Nov. 23 investor meeting is scheduled to vote on the deal.

Despite Brookfield Renewable tracking well ahead of its annual equity deployment targets, we expect the company to remain acquisitive. The current volatility in the renewables market should play to the firm’s strengths around capital allocation (Exemplary Capital Allocation Rating). In addition to acquisitions, the company allocated capital to share repurchases in the quarter, buying back 1.5 million shares, its first such activity since 2018.