KeyStone’s Stock Talk Podcast Episode 146
This week, we start with some brief comments about the volatility in cryptos and the shift near-term from growth stocks.
In our YSOT segment, we take 2 listener questions. The first is on, Vicinity Motor Corp. (VMC: TSX), a Canadian company that supplies electric, CNG, gas, and clean-diesel buses for both public and commercial enterprise use in the U.S and Canada. Great first-quarter deliveries and strong revenue growth failed to push the stock higher near-term, we take a look at why.
Our second YSOT is on Brookfield Renewable Partners L.P. (BEP.UN: TSX), which operates one of the world’s largest publicly traded, pure-play renewable power platforms, consisting of hydroelectric, wind, solar, and storage facilities in North America, South America, Europe, and Asia. A listener asks if the company, which has retreated significantly of late, is well placed to capitalize on the green wave. He asks if we see value at the current price.
YSOT:
Vicinity Motor Corp. (VMC:TSX)
Formerly (GRANDE WEST TRANSPORTATION GROUP INC.)
Price: $6.36
Market Cap: $186 Million
What Does Vicinity Do?
A Canadian company that supplies electric, CNG, gas, and clean-diesel buses for both public and commercial enterprise use in the U.S and Canada. The company has delivered over 500 buses and is a market leader in the mid-size bus category in Canada where it sells its Vicinity branded buses.
The flagship Vicinity Lightning™ EV bus is enabled through a strategic supply agreement with BMW batteries.
In March of 2021, the company completed a 3:1 share consolidation in preparation for a proposed Nasdaq listing.
Recent Results:
First Quarter 2021 and Subsequent Operational Highlights
- Revenue grew 588% to $27.3 million in the first quarter of 2021, as compared to $4.0 million in the same year-ago quarter.
- Net income for the first quarter of 2021 increased to $2.0 million, or $0.07 per share, as compared to a net loss of $1.7 million, or ($0.07) per share, in the same year-ago quarter.
- Delivered 67 buses for the three months ended March 31, 2021, as compared to 6 buses for the three months ended March 31, 2020.
- Received orders for another ten Vicinity Lightning™ EV buses with expected delivery in 2021.
- In April of 2021, the Company announced a new purchase order for 15 CNG buses with a legacy customer that is a Canadian provincial public transportation provider.
Conclusion:
The first quarter of 2021 was a blockbuster quarter by any measure, having delivered 20% more buses in the first three months of 2021 than the company did in all of 2020 combined. But the results can be very lumpy. During 2017 and 2018, the company achieved record revenues of $54 and $70 million respectively. However, the company experienced a decline in the backlog during 2018 mainly due to lower order intake as customers put their new fleets into service, which negatively impacted 2019 results which cratered to just under $25 million. Bid activity during 2019 was significantly higher than in 2018, which translated into 2020 and 2021 sales. Delays due to COVID-19 pushed a large portion of expected 2020 deliveries into 2021. 2020 was also a tough year with just over $26 million in sales, but the company did push forward into the US market completing and delivering seven of its first Buy America orders and took orders for further Buy America deliveries in 2021. Vicinity delivered a record 67 busses in Q1 and expect another approximated 23-25 in Q2 for over 100 buses in the first two quarters of 2021 based on current production and delivery schedules. These are great numbers and will make the company significantly profitable in the first half of 2021 – but the guidance beyond this is limited.
The first quarter was excellent, but the lack of share price movement on the great quarterly numbers appears to be due to the historically lumpy nature of the business. We monitor it closely but given the lack of consistent growth numbers, it is difficult to model cash flows going forward and determine fair value.
Admirable business – one to monitor – great sector – lumpy historical results – lack of guidance.
Your Stock Our Take
Brookfield Renewable Partners L.P. (BEP.UN: TSX)
Current Price: $48.33
Market Cap: $13 billion
What does the company do?
Brookfield Renewable operates one of the world’s largest publicly traded, pure-play renewable power platforms, consisting of hydroelectric, wind, solar, and storage facilities in North America, South America, Europe, and Asia. The company’s total installed capacity is approximately 20,000 megawatts capacity with another 23,000 megawatts in its development pipeline. Investors can access the portfolio either through Brookfield Renewable Partners L.P. (NYSE: BEP; TSX: BEP.UN), a Bermuda-based limited partnership, or Brookfield Renewable Corporation (NYSE, TSX: BEPC), a Canadian corporation.
Key Points:
Brookfield Renewable participated in the renewable power boom last year but after hitting an all-time high of about $62 in January of this year, the stock price has pulled back 22% to $48.
Brookfield Renewables is largely following the general trend of the renewable and cleantech space. Over the past few years, and especially in 2020, there was a lot of excitement about renewables, tech, and other growth-oriented, new-age industries, even including space stocks. This year capital has flowed out of these segments and into some more traditional sectors like resources, banking, and industrials. The reason for this has been due to a combination of inflation fears and high valuations on last year’s big winners.
I personally don’t see this as cause for concern, at least in the long term. We look at every stock investment on a company-by-company basis. The underlying economic and environmental drivers supporting renewables growth remain unchanged. The only thing that has really changed is short-term investor sentiment. This is perfectly normal, as we expect investor excitement to fluctuate over time, and it’s also perfectly healthy because it drives out some of the speculative capital and creates potential opportunities to buy solid, long-term businesses at more attractive prices.
Speaking of financials, Brookfield Renewables released its first-quarter financial results on May 4th.
Recent Quarterly Financials
- The net power generated was up slightly in the quarter…approximately 3%, compared to the previous year.
- Funds from operations, or cash flow, per unit was up slightly as well to $0.38, compared to $0.37 in the previous year.
- Last year, in 2020, funds from operations per unit were $1.32 compared to $1.30 in 2019.
- The company does also report a normalized FFO, or cash flow, a figure which reflects what cash flow would be if the weather is consistent. Normalized FFO per unit increased 21% in Q1.
- The company attributes the growth in the period to contributions from its recent acquisition and also contractual inflationary adjustments.
- The long-term distribution growth target is expected to be between 5% and 9%; the company increased the distribution by 5% at the start of the year.
Conclusion
I think Brookfield Renewable is a fine company. I would like to see better growth in cash flow per unit but the stability of the business and sustainability of the distribution should be very strong. The company pays a yield of 3% yield is targeting distribution growth of 5% to 9% per year. Over time, we would expect about an 8% to 12% average total return annually.
One thing I find interesting about Brookfield Renewables is that their long-term contracts contain some form of inflation escalator. So when inflation increases, the company will receive a commensurate increase in revenue and cash flow. This is an advantageous structure in an inflationary environment.
We have another Brookfield company under coverage in our Income Research that we prefer, Brookfield Infrastructure. We just recently updated the company to our clients and find that has better diversification in its business, better growth and also has inflation escalators structured into its contracts.
