Brookfield Renewable Partners (BEP 0.53%), one of the world's largest publicly traded renewable power companies, continues to generate strong results for its investors. That's evident in the company's third-quarter earnings report, in which it posted mid-teens growth in cash flow, powered by recent acquisitions. That growth appears poised to continue given the company's current expansion initiatives, as well as its strengthening balance sheet, which provides it with the financial flexibility it needs to keep making needle-moving deals.
Digging into the numbers
|
Metric |
Q3 2018 |
Q3 2017 |
Change (YOY) |
|---|---|---|---|
|
$105 million |
$91 million |
15.4% | |
|
FFO per unit |
$0.33 |
$0.28 |
17.9% |
Data source: Brookfield Renewable Partners. YOY = year over year.
As the table shows, Brookfield Renewable generated strong cash flow growth during the third quarter. What makes that showing all the more impressive is that the company accomplished it even though its core hydroelectric business underperformed:
Data source: Brookfield Renewable Partners. Chart by the author.
Earnings in Brookfield's hydroelectric segment slumped 21% versus the year-ago period because it generated less electricity in some of its geographies during quarter. However, the company partially overcame that weakness by selling power stored in its reservoirs during periods of high prices.
Brookfield's wind segment generated 61% more earnings compared to last year's third quarter due mainly to the acquisition of a stake in TerraForm Power (TERP +0.00%), which it recently increased, and its sibling TerraForm Global. The wind segment also got a boost from a newly commissioned wind farm in Ireland, as well as strong performance from its wind assets in Brazil, which helped offset weaker wind resources in the U.S. and Ireland.
Earnings in Brookfield Renewable's solar, storage, and other segment rocketed 600% mainly due to the stake in TerraForm Power, which provided the company with a solar platform. Otherwise, earnings in this segment were in line with the company's expectations.
Image source: Getty Images.
A look at what's ahead
Brookfield Renewable remains active in both building new renewable generating capacity as well as acquiring additional facilities to expand its portfolio. The company currently has several expansion projects under way, including a wind farm in Scotland, some small hydro projects in Brazil, and an expansion of a U.S. pumped storage facility. Meanwhile, it has several other projects in advanced stage development to power growth in the future. On top of that, the company made another acquisition, buying a wind farm in Ireland after the quarter ended.
In addition to adding new renewable power generating facilities to its portfolio, Brookfield also continues to monetize some of its legacy assets, which gives it the cash to reinvest in higher-return opportunities. The company is currently in the process of selling several assets, including a 50% stake in some Canadian hydroelectric facilities, as well as a portfolio of wind and solar assets in South Africa. These sales, when combined with others it completed earlier in the year, should generate $850 million in proceeds by year-end. That will boost the company's liquidity to $2.3 billion, giving it the flexibility to take advantage of needle-moving opportunities that may arise, such as its investments in TerraForm Power over the past year.
Brookfield aims to invest $700 million to $800 million per year in expanding its renewable power portfolio. The company believes that this will enable it to generate 6% to 11% annual FFO growth, which should support distribution increases in the range of 5% to 9% per year.
A great renewable energy stock for the long term
Brookfield Renewable's third-quarter results show that its strategic initiatives are paying dividends. The company's decision to invest in TerraForm Power helped drive strong cash flow growth in the quarter, enabling it to more than offset some weakness in its hydropower business. Meanwhile, with the company working hard to boost its liquidity, it has the resources to make more deals, which should allow it to continue increasing its 7.1%-yielding distribution to investors.
