Brookfield Renewable(NYSE: BEPC)(NYSE: BEP) is already growing briskly. The leading global renewable energy company has enough organic drivers to grow its funds from operations (FFO) per share by 7% to 12% annually through 2028. However, that's not stopping the company from pursuing accretive acquisition opportunities to accelerate growth.
The company is working to add even more power to its growth engine by investing in European renewable energy producer Neoen. Here's a closer look at the potential deal and how it could accelerate Brookfield's growth in the coming years.
A two-step deal
Brookfield Renewable is partnering with its parent company, Brookfield Asset Management, and other institutional investors, including Singapore's Temasek, to purchase a majority stake in Neoen, a leading global renewable energy producer based in France. The group would buy that majority interest from Neoen's main investors and then purchase the rest of the company's shares at the same price from minority shareholders.
The deal would value Neoen at around $6.6 billion. Brookfield Renewable would invest about $500 million into the transaction through its Brookfield Global Transition Fund II, where it's the largest investor.
Neoen is a leading global renewable energy developer. It has 8 gigawatts (GW) of wind, solar, and storage assets in operation and under construction. It also has a pipeline of 20 GW of projects in advanced development stages across Australia, France, and Nordic countries.
Neoen has significant expertise in battery storage. That sizable platform would expand Brookfield's global operations, which currently boast nearly 34 GW of generating capacity and about 157 GW of projects under development.
Brookfield's investment in Neoen would help accelerate its ability to develop its pipeline of projects. Brookfield can provide Neoen with access to capital and expertise. The world will need more renewable energy in the coming years, especially given the accelerating demand from data centers to support cloud computing and artificial intelligence (AI) applications. Brookfield recently signed a landmark power deal with tech titan Microsoft to help power its AI ambitions.
Adding to an already powerful growth plan
Brookfield's proposed acquisition of Neoen would add to its already robust growth profile. The company's existing renewable power operations should drive 4% to 7% FFOper share growth annually through 2028. It expects inflation-indexed rate increases on its long-term power purchase agreements and margin enhancement activities, like providing ancillary services to drive this growth.
Brookfield also expects its development pipeline to add 3% to 5% to its FFO per share each year. The company anticipates completing over 7 GW of new capacity each year through the end of the decade. Acquiring Neoen would enhance its ability to achieve this goal by increasing its massive development pipeline.
Meanwhile, Brookfield sees acquisitions like Neoen supplementing its already powerful organic growth drivers. The company believes mergers and acquisitions activities will give it the power to deliver 10%+ FFO per share growth annually through at least 2028. Neoen is the latest in a string of deals by the company as it works to consolidate the global renewable energy industry to become an even larger-scale player. The company's growing scale helps reduce costs and opens the doors to new opportunities, like its partnership with Microsoft.
Brookfield's quartet of growth drivers should fuel its continued increase in its high-yielding dividend (currently yielding around 4.5%). The company aims to grow that payout by 5% to 9% annually. It has increased its dividend at a 6% compound annual rate since 2001.
Powerful total return potential
Brookfield Renewable is looking to add to its already strong growth profile by investing in Neoen. The deal would increase its scale in Europe and add to its development pipeline. It would also help give the company the fuel to grow at a double-digit rate over the next several years, enhancing its ability to continue increasing its high-yielding dividend.
That would further boost the company's ability to deliver double-digit total returns in the coming years. Brookfield's income and upside potential make it one of the top renewable energy stocks to buy.
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Matt DiLallo has positions in Brookfield Asset Management, Brookfield Renewable, and Brookfield Renewable Partners. The Motley Fool has positions in and recommends Brookfield Asset Management and Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
