Tuesday, July 29, 2008

TransAlta Corp

This is another utility company (TSX-TA) in which I have invested. It is not the any dividend achiever list, as they do not consistently raise their dividends. However, I like utility companies, as they tend to do well. I have been invested in this company since 1987 and I have an average annual return of 9.3%. Over the last 5 years, I have earned some 19.6% return on this company.

At present, most analysts have a hold on this company. There is an offer to buy it at $39 a share. There are investors that feel that the company can do more to maximize shareholder value. I think the hold rating is given by analysts because it would seem that this company is overvalued.

The problems with this company are that Revenue and Earnings per Share (EPS) are not growing much. Revenue, for the past 5 years to December 31, 2007, is 8.8% per annum and EPS is 6.4 % per annum. The problem being that you if you cannot grow revenue, you cannot grow much. At December 31, 2007, the Graham price was $19.85 and the stock price was $33.35. For a utility company you would like to see the Graham price and the stock price much closer. The reason for the low Graham price is the low growth in EPS and the low growth in Book Value. Book Value has barely grown over the 5 or 10 years.

The Current Asset/Current Liability Ratio is only at .54 and the Asset/Liability ratio a bit better at 1.26. This means that the company has a high debt. However, most utility companies have high debt ratios. The really only bright spot is the Operational Profit Margin is very good at 30.5% and the Accrual Ratio is at least negative. Although an Accrual Ratio of -1.8 is not that great.

This company is an electric generation and marketing company. They operate in Canada, the U.S., Mexico and Australia. Its web site is http://www.transalta.com/. See my spreadsheet on this company at http://ca.geocities.com/brunnsu@rogers.com/ta.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at http://ca.geocities.com/brunnsu@rogers.com/opinion.html for a list of the stocks for which I have put up spreadsheets on web site.

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