Brookfield Renewable Partners (TSX: BEP.UN) is one of Canada’s biggest renewable energy partnerships. Run by the legendary Brookfield (TSX: BN), it invests in renewable energy assets all around the world. The company’s portfolio consists primarily of hydro, wind, and solar assets. It recently took its first foray into Nuclear Energy, by buying the nuclear parts maker Westinghouse.
With the assets it possesses, Brookfield Renewable is one of the largest suppliers of green power in the world. It may also be a good investment. BEP.UN has delivered steady capital appreciation this year, all while paying a 4.2% yielding dividend. If the company can keep up its track record over the long term, then it should deliver adequate results for investors.
Renewables are being incentivized by governments
One of the big advantages that BEP has right now is government support. Governments worldwide are incentivizing the adoption of renewable energy in a number of ways, including:
- Tax breaks for consumers who buy EVs
- Subsidies for wind/solar energy companies
- Government investment in hydroelectric projects
- Tax credits for companies that invest in renewable infrastructure
All of these policies add up to a situation in which renewables are very tax efficient investments. And, indeed, we can see the effects of this in BEP’s performance. In the most recent 12-month period, the company delivered the following profitability metrics:
- 69% gross profit margin
- 30% operating profit margin
- A 63.4% EBITDA margin
These metrics suggest that the company has a lot of potential to become profitable. On the other hand, the net margin and free cash flow margins are both slightly negative, so it is not currently bottom-line profitable. But the potential, going by gross and operating margins, is there. Also, the company has been a consistent grower, having increased its revenue by a 12.5% CAGR over the last five years.
Brookfield’s excellent capital allocation
As we can see, Brookfield Renewable Partners has strong growth and good profitability by some metrics. The historical picture looks good. Can we say that the future looks just as bright?
That’s a much more complicated question, but there is one encouraging sign here:
Brookfield’s team.
Brookfield is one of the best companies in the world at capital allocation. It has compounded its portfolio at a 16% CAGR over the last decade, and its has the talent to keep it going. Among Brookfield’s team you’ll find legendary value investors like Bruce Flatt, Howard Marks, and others. Marks’ investments at Oaktree, which Brookfield recently bought, compounded at a 20% CAGR, which is among the best long-term results in the history of the markets.
So, Brookfield Renewable is part of the Brookfield family, a team with some very talented people who have outperformed the market. That is one reason to believe that BEP will thrive in the decades ahead.
Of course, nothing is ever a sure thing. When a company’s prospects depend on key talent, it tends to suffer when that talent leaves. Perhaps after Bruce Flatt retires, Brookfield and its subsidiaries like Brookfield Renewable won’t perform as well. However, at 58 years old, Flatt probably has a few good years left in him. Most likely, Brookfield and BEP will continue to do well.
