Toronto’s Brookfield Renewable Energy Partners (BEP.UN) has spent most of its existence operating power plants in North America and Brazil. That all changed on March 25 when it bought a piece of Ireland’s Bord Gais Eirann and its 17 wind projects for $960 million, which includes $280 million in debt.
It’s the first time that the company has made an overseas acquisition and it’s a signal that it wants be a player in the growing European renewable energy market. While the company has talked about wanting a piece of the European pie for some time, investor still reacted negatively to the news. The stock is down about 1.5% from yesterday’s opening bell.
Is this an entry to point to buy? Juan Plessis, an analyst with Cannacord Genuity, isn’t so sure. He has mixed feeling about the deal. In a March 26 report, Plessis said that the purchase does have the potential to add a “few cents” to the company’s annual cash flow per share. It also helps diversify the company’s assets away from North America.
However, by owning a foreign asset the company opens itself up to greater exchange rate risk, he writes. That could be fixed by issuing euro-denominated debt and foreign currency hedges, but nothing has been said on how the business plans to combat this forex challenge. He has a hold rating on the stock and price target of $32—it’s trading at $31 today.
While there may be some short-term risks around this purchase, there is one good reason to own this stock today: its dividend. It has a 5.54% yield—it increased its dividend by 6.9% last quarter — and while more purchases like this one could impede future dividend increases, writes Plessis, you’re still getting an above average payout.
When the company does make purchases, it buys long-life assets that will hopefully generate money for years to come, so this is certainly more of a long-term play. The Irish wind projects that Brookfield bought come with 15-year contracts, writes Plessis.
According to S&P Capital IQ, the average rating is an outperform with the highest 12-month price target at $34. Even if it doesn’t appreciate in value by that much in the short-term, that hefty dividend will give your portfolio a boost.
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