Brookfield Renewable Partners LP

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Brookfield Renewable Partners LP

Our Conclusion

Following Brookfield’s annual investor day, our outlook remains unchanged and we continue to believe the company can deliver on its 5%-9% annual distribution growth through a combination of ongoing organic and M&A-driven growth initiatives. Aside from providing an update on its operations and a refresh of growth initiatives/strategies, there were no material announcements. We reiterate our Outperformer rating and C$45 price target.

Implications

M&A—Remains A Key Element Of Growth. Completion of the TERP transaction, which will see BEP.UN and its partners acquire a controlling stake, is nearing conclusion with a TERP shareholder vote set for October 6. Using the base-case scenario put forth, we see modest accretion to our estimates and valuation. Further, we believe BEP.UN will be able to surface more value over time through optimization of operations, leverage expertise in emerging segments (e.g. Distributed solar), refinement in capital structure, and future growth (e.g., dropdowns). In our view, the market is not pricing in this upside. Additionally, we expect the GLBL shareholder vote to be set shortly and that deal to be complete in the next couple of
quarters. Deal flow also remains robust and media reports suggest Brookfield will acquire a controlling stake in Renova Energia S.A. The equity financing completed in July has the balance sheet in good condition.

Organic Drivers—Inherent Upside. The existing business should see continued cash flow growth driven by contract inflation-escalators, recontracting opportunities, solid cost containment and favorable market dynamics in some markets (e.g., Colombia). The
development pipeline spread should be another source of cash flow growth. BEP.UN continues to believe organic growth can effectively see the company achieve the low end of its 5%-9% per share growth targets. Any positive trends in power prices, whether through higher merchant prices, strong capacity payments, or ancillary services, provide more upside and would allow the company to trim its payout ratio, while redeploying excess cash into further growth.