Before market opened on Thursday, Brookfield Renewable Energy Partners LP posted second quarter adj. EBITDA of $361 million versus our $373 million estimate and $358 million in second quarter of 2013. Company’s plan of growth by international acquisition continues to generate shareholder value. As EBITDA remained flat, fund from operations was increased by 7% year-over-year which leads dividend growth.
The idea of leaving 11% to 21% of sales open to merchant markets and then re-contracting at increased prices seems successful. In Brazil where re-contracting doubts persevered previous year, the firm is signing 3to 5 year deals at 51% premiums to embedded contracts. Presently since first quarter, avg. forward contract prices for 2015 to 2016 have increased by 5%.
The market familiarity and a marketing function are vital to catch hold this value and efficiently competing with yield competitors. We noticed that most dividend paying power companies are buying or developing most of fully-contracted assets. Company is searching its own position.
In spite of its established key strengths, and its premium growth at low risk track record, company is trading at a discount to “Yield” companies (at 9% free cash yield versus 6%). This difference will potentially close with the ongoing recognition that company’s dividend growth equalizes or go beyond competitors.
Company’s quality assets and potentials for development in addition to acquisitions should place it at a premium among renewable power dividend companies. We reiterate our “Sector Outperform” rating and C$39 target price.