8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
1/15
Brookfield Renewable Energy Partners Pitch
[TSX:BEP UN]
Mitchell Li Class of 2017
November 19, 2014Queens University Investment Counsel | Stock Pitch Competition
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
2/15
Company Overview
One of the largest independent owner-operators of high qual ity,
low cost, renewable, hydroelectric and wind power generatingfacilities
Subsidiary of Brookfield Asset Management, a global alternative
asset manager with approximately $200 billion in assets under
management
Portfolio diversified across 72 river systems and 13 power
markets in the Canada, U.S., Brazil and Europe
Objective: To deliver gross returns of 15% in 3 years on a
portfolio basis
Market Cap: $5.12 Billion
Deploy capital into hydroelectric and wind opportunities
globally Largest hydro portfolio in a public entity globally
15 year track record of accretive M&A growth
Position the business for economic growth
Lock in value through Power Purchase Agreements
Advance proprietary development pipeline at
premium returns
Preserve strong balance sheet and high levels of liquidity
Investment grade balance sheet Diverse sources of capital (public & private)
Inflation-protected revenues
Position
Background
Name Richard Legault Harry Goldgut Sachin Shah
President &
CEO
Senior positions in
operations, finance,
and corporate
development with the
companys forest
products operations
Chairman CFO
Played an active role
in the restructuring
of the electricity
industry in Ontario
through several
committees
CFO and VP of Finance
positions at Brookfield
Asset Management,
West Street Capital
Crop, Brascan Corp
Business Overview
Management
Business Strategy
Recent News
Sept 15, 2014 Announced distribution growth target to
5-9% annually up from previous 3-5%
Expects to achieve this while maintaining
current payout ratio of 60-70% of FFO
Aug 8, 2014 Completes Safe Harbor Acquisition
Owns approx. 40% interest
Aug 6, 2014 Strong Quarterly Results
Results benefited from new Irish wind
assets which contributed $11 million to
FFO
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
2
Moodys Rating: Baa2
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
3/15
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
4/15
Over the past five years, wind power's share of the total
electricity generated in the U.S. from increased from 1.9-4.3%
More projects to come from spending under the American
Recovery and Reinvestment Act
$8.5 billion to subsidize loans for renewable energy
Stronger economic activity and a focus on energy
independence and reducing greenhouse gas emissions will
contribute to growth
Push for the creation of offshore wind farms
Revenue expected to increase at an average annual
rate of 18.1% to $8.0 billion
Industry OutlookHydroelectric Power
Heavy reliance on precipitation. Fortunately, annual
precipitation is expected to increase at an annual ized rate
of 1.1% over the five years Hydro generation expected to increase at an average
rate of 1.2%/year
Hydro will remain the industrys largest revenue-producing
segment
Currently, only about 3% of the U.Ss 80,000 dams
generate electricity
Utilizing existing infrastructure lowers the initial cost
of constructing a hydroelectric dam
Industry revenue is forecasted to increase at an annualizedrate of 4.7% to $4.6 billion during the next five years
3,000
3,500
4,000
4,500
5,000
2003 2006 2009 2012 2015
Revenue($MM)
Hydroelectricity Industry Revenue
Wind Power
Life Cycle: Mature
0
2000
4000
6000
8000
10000
2001 2004 2007 2010 2013
Revenue($MM
)
Wind Power Industry RevenueLife Cycle: Growing
Key Players
Key Players
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
4
Market Share: 20.1%
Market Share: 10%
Market Share: 23.3%Market Share: 14%
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
5/15
Investment Thesis
Argument III: Valuation
Argument I: Strong Macroeconomic Demand
Argument II: Positioned to generate stable, long-term cash flows
Renewable power is a compelling asset class due to three reasons:
1. Demand for electricity is closely linked to economic growth
2. Renewables are becoming increasingly important to diversify the supply mix of U.S. power generation
3. Environmental regulations are increasing in many countries
BEPs diversified portfolios output is sold predominantly under long-term contracts and generates enough
electricity from renewable resources to power more than 3.5 million homes on average each year
Relative to its peer group, BEP is undervalued on many metrics; trading at 12.45x EV/EBITDA 2015E
below its peer group average of 12.71x. Its stature as a global leader in renewable power and its superior
growth platform warrant a larger premium valuation
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
5
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
6/15
Investment Thesis
Improving Economic Conditions
40% of current U.S. power generation comes from coal
and 30% from gas
However, gas alone cannot displace coal and renewables
such as hydro and wind are becoming increasingly
important to diversity the supply mix
Widespread acceptance of climate change has increased
regulation in many countries
64 countries (including every EU country) have national
targets for renewable energy supply
Sustained economic growth will contribute to more robust
demand
Price of electric power is expected to increase at a
faster rate than the previous period
Home construction is also expected to increase,
raising demand during the construction phase as well
as during completion
Low and largely fixed cost structure will allow for increasing
margins as prices increase
Electricity Consumption vs. Price
Environmental Regulations Need for Diversified Supply
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
6
Rising
Electricity
Prices
Increasing
Generation
Capacity
Revenue
Growth
Argument I: Strong Macroeconomic Demand
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
7/15
Investment Thesis
High Quality Assets
Owns a 2,000 MW development pipeline to drive continued
greenfield development growth
Plans to build out 500-750 MW of existing pipeline
Funded from internally generated cash flows
Potential to add $140 million of incremental FFO by 2019
Strong Acquisition Record
Long-term Contracts Advancing Development Pipeline
Safe Harbour
Second largest privately held
hydro in U.S.
Targeted Return: 16%
White Pine Hydro
Sells into New England
wholesale market
Targeted Return: 18%
Positioned
assets for
long-termcontracts
when pricing
is inline with
long-term
view of value
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
7
- Management Forecast
Argument II: Positioned to generate stable, long-term cash flows
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
8/15
0
1
2
3Historical Exchange Rates
USD/EUR USD/CAD USD/BRL
y = 0.127x + 0.277
R = 0.0296
-5
-3
-1
1
3
5
-12 -6 0 6 12
Risk IdentificationDependence on BAM & Partners Exchange Rate Fluctuations
BEP vs. S&P 500 Utilities Index Variable Rain/Wind Conditions
BAMs 65% ownership stake
BAM may choose not to support acquisition
opportunities
Lack of control over operations conducted through joint
ventures, partnerships and consortium arrangements
Revenues from exporting activities are influenced by
exchange rates
2009 2010 2011 2012 2013 2014
Renewable energy is heavily dependant on precipitation and
wind conditions
In particular, drought conditions from low rainfall
can reduce industry output, which in turn, lowersrevenue
Fortunately, annual precipitation is expected to increase at an
annualized rate of 1.1% over the five years
Hydro generation expected to increase at an average
rate of 1.2%/year
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
8
Highly Contracted Cash Flows
5%
95%Uncontracted Contracted
Takes longer to secure business
Cost overruns can reduce margins
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
9/15
Valuation & DecisionComparables Company Analysis
CompanyMkt Cap
(MM)EnterpriseValue (B)
EV/EBITDA EV/RevenueP/CF
NetDebt/EBITDA P/B
FCFYield
DividendYieldLTM 2014E 2015E 2014E 2015E
Northland 2528.48 5522.10 14.27 x 15.29 x 14.33 x 7.48 x 7.75 x 6.98 x 6.28 x 3.94 x -42.40% 6.30%
Algonquin 2124.68 4039.61 17.29 x 14.85 x 12.52 x 4.42 x 4.01 x 15.30 x 5.94 x 1.98 x -11.43% 3.74%
Innergex 1106.11 2853.24 17.56 x 16.51 x 14.81 x 12.34 x 11.36 x 11.56 x 9.60 x 2.65 x -11.13% 5.35%
TransAlta 1348.48 2035.14 nmf 11.79 x 11.58 x 8.88 x 8.61 x nmf nmf 1.34 x nmf nmf
Pattern 1884.62 3581.29 nmf 16.50 x 10.58 x 11.93 x 8.61 x nmf 8.93 x nmf nmf nmf
Average 2352.50 6219.03 15.93 x 14.77 x 12.71 x 9.14 x 8.22 x 9.86 x 7.36 x 2.31 x -11.77% 4.95%
Brookfield 5122.62 19282.80 14.61 x 13.69 x 12.45 x 9.81 x 9.01 x 5.59 x 6.07 x 1.64 x 17.88% 4.42%
Recommendation: Buy
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
9
Profitability
Company
Operating
Margin (%)
Return on
Assets (%)
Return on
Equity (%)
Return on
Capital (%)
Northland 31.50% -1.20% -9.24% nmf Algonquin 4.67% 1.65% 5.28% 3.07%
Innergex 52.24% -1.19% -8.44% nmf
TransAlta 22.23% nmf nmf nmf
Pattern 14.55% -1.07% -4.09% nmf
Average 24.03% -0.29% -2.93% 3.07%
Brookfield 19.01% 0.35% 1.86% 4.36%
Source: Bloomberg
Nov 18, 2014
Price November 18:
Capital Return:Dividend Return:
Total Implied Return:
Stop-Loss:
$35.74
9.46%4.42%
13.88%
$39.12Target Price:
Entry Price: Market Price
$28.50
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
10/15
Conclusion
Argument I: Strong Macroeconomic
Demand
Argument II: Positioned to generate
stable, long-term cash flows
Argument III: Valuation
Brookfields strong liquidity (almost $1.2 billion available) position the L.P. to take a long-term view in making high-
quality acquisitions and accretive development investments (17-20% post-tax IRR) that can support a consistent
annual dividend of >5% over the long term
Investment Thesis
Conclusion
10
Improving economic conditionsIncreasing environmental regulations
Need for diversified supply
High quality assets
Strong acquisition record
Long-term Contracts
Undervalued
Recommendation: Buy
Entry Price:
Price November 18:
Target Price:
$35.74
Market Price
$39.12
Dividend Return: 4.42%
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
11/15
Appendix 1: Company Overview
Projects Developed & Built
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
11
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
12/15
Canadian Electricity Imports vs. Exports
Appendix 2: Industry Outlook
39%
27%
19%
7%
6%1% 1% Coal
Natural Gas
Nuclear
Hydropower
Other Renewables
Petroleum
Other Gases 81%
19%
Total Exports Total Imports
Exports: $2.35 B Imports: $519 M
Other renewables
Biomass 1.48%
Geothermal 0.41%
Solar 0.23%
Wind 4.13%
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
Distribution of U.S. Electricity Generation
12
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
13/15
Appendix 3: Valuation
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
13
Comparables Company Analysis
Multiple
Metric
Implied EV ($MM) Implied Mkt Cap ($MM) Implied Price
Low Mean High Low Mean High Low Mean High Low Mean High
EV/EBITDA
2014E 11.79 x 14.77 x 16.51 x $ 1,319.49 $15,560.77 $19,491.91 $21,782.93
EV/EBITDA
2015E 10.58 x 12.71 x 14.81 x $ 1,319.49 $13,966.13 $16,774.56 $19,540.50
EV/Revenue
2014E 4.42 x 9.14 x 12.34 x $ 1,965.24 $ 8,677.66 $17,968.53 $24,256.52
EV/Revenue2015E 4.01 x 8.22 x 11.36 x $ 1,965.24 $ 7,875.81 $16,160.07 $22,325.02
P/B 10.58 x 2.31 x 11.79 x $ 21.60 $ 29.04 $ 49.93 $ 85.18
Average $11,520.09 $17,598.77 $21,976.24 $(2,019.91) $4,058.77 $8,436.24 $ (14.09) $ 28.32 $ 58.86
Average $ 7.47 $ 39.12 $ 72.02
Metrics Used to Convert EV to Mkt Cap ($MM)
Shares
Preferred EquityMinority
Interest
Debt Cash
$ 756.00 $ 2,499.00 $10,285.00 0 143,330,025
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
14/15
With its flexible but strong balance sheet, Brookfield has demonstrated a willingness to take on a higher degree
of near-term contracting risk at the margin in anticipation of rising power prices in its key geographies over time
Company Overview Industry Outlook Investment Thesis Risk Identification Valuation & Decision
Balance Sheet
14
Appendix 4: Valuation
($ Millions) Sep 30, 2013 Dec 31, 2013
Property, plant and equipment, at fair value 17,364 15,741
Equity-accounted investments 232 290
Total assets 18,555 16,979
Long-term debt and credit facilities 7,322 6,623
Deferred income tax liabilities 2,332 2,265Total liabilities 10,285 9,443
Preferred equity 756 796
Participating non-controlling interests - in operating
subsidiaries 2,202 1,303
General partnership interest in a holding subsidiary held by
Brookfield 51 54
Participating non-controlling interests - in a holding
subsidiary
-Redeemable/Exchangeable units held by Brookfield 2,499 2,657
Limited partners' equity 2,762 2,726
Total liabilities and equity 18,555 16,979
8/9/2019 Mitchell Li - Brookfield Renewable Energy Partners Pitch (1)
15/15
Bibliography
Analytic Databases
BloombergCapital IQ
Thomson One
IBIS World
Other Sources
U.S. Energy Information Administration for Industry Segmentation
Oanda for Exchange Rates
Moodys for Investment Rating
Investor Presentation from Brookfield
15
Bibliography