Is Now the Time for This Top TSX Renewables Play to Be Divesting?

Here’s why Brookfield Renewable Partners (TSX:BEP.U)(NYSE:BEP) is making some pretty interesting divestitures at a time when others are buying.

Chris MacDonald

Chris MacDonald has had a love for finance his whole life, ultimately leading him to pursue an MBA in finance. He's worked as a financial analyst for a number of companies in the corporate finance and venture capital space during his 10-year investing career. He endeavors to follow in the footsteps of iconic investors like Warren Buffett in building a long-term defensive portfolio.

Published May 2, 2021 9:32 am EDT

Toronto-based Brookfield Renewable Partners (TSX:BEP.U)(NYSE: BEP) is set to sell its wind power assets for a total of $1.4 billion in two isolated deals. The two concerned companies are Florida-based NextEra Energy Partners LP and Orsted – a Denmark-based multinational power company.

These two companies are shelling out US$733 million and US$677 million, respectively, in order to build up their renewable asset portfolios.

Here’s what I think about these deals.

Asset divestitures part of the plan?

NextEra is on its course to acquire Brookfield’s three wind farms in California and two wind farms in New Hampshire. The company expects to generate a combined 391 megawatts of renewable power as a result of this asset acquisition. On the other hand, Orsted is acquiring Brookfield’s onshore wind power ventures in the United Kingdom and Ireland. Accordingly, Orsted will be taking over nearly 390 megawatts of renewable power production in the process.

The assets Brookfield is selling off are great holdings on their own. However, it appears these deals are calculated pieces of Brookfield’s long-term strategy. By selling off assets it views as non-core, Brookfield can build up capital reserves to build out its larger projects. For shareholders in Brookfield, they’re certainly hoping this is the case.

Renewable power assets are fetching a premium in the market today. Accordingly, companies like Brookfield with a rather large portfolio of assets may trim around the edges to raise cash.

Currently, the company is looking to invest around $1 billion yearly on business development and acquisitions. Financing these deals via sales of non-core assets isn’t necessarily a bad thing. Companies do it all the time.

However, the question is whether investors view these divestments the same way.

Bottom line

Yes, Brookfield will likely see some revenue and earnings lost as a result of these divestitures. That said, the company’s expecting it can more than replace this lost potential with additional deals.

After all, the company’s forecasting double-digit growth of Brookfield’s cash flow per share through 2025. This sort of growth is expected to power some significant capital appreciation and dividend growth over time.

Brookfield has nearly 20,000 megawatts of power generating capacity. Thus, the 800 megawatts lost as a result of the deal can easily be reversed with additional bolt-on acquisitions. Brookfield is a massive player in the renewable energy space, and these remain small deals.

For those who believe in Brookfield’s management team, and trust the strategy, I wouldn’t be worried about these moves. They’re part of the long-term game Brookfield is playing. And over the long term, Brookfield has a habit of winning.