Wednesday, June 23, 2010

Atlantic Power Corp 2

I always like to first look at the Insider trading reporting. I find that there is no insider selling, and very little insider buying. The other thing I see is that the CFO and CEO have both been keeping recently issued stock options. This is generally considered a positive point with many analysts. The other thing to note is that Caisse de Dépôt et placement du Québec used to own some 19% of this company, but does not anymore. However, they still own a lot of this company’s debentures. As far as I can see, all this company’s debentures are convertible into common shares.

So, let’s go on to look at the P/E ratio. Since this company has in the past only earned money in one year, I have no comparison to make. However, in 2008 they made $2.04 CDN, so the P/E was really low, at around 4 or 5. The current P/E on estimated earnings for 2010 is 28. This is quite a high P/E for a utility company. The current Graham price is also built on earnings estimates and for 2010, I get a Graham Price of $8.21. This is some 55% below the current stock price of $12.70. Here, again the difference is very high for a utility company.

We do have some history for this company on Price/Book Value and dividend yield. The P/B ratio average for the last 5 and 6 years is 3.27. The current P/B ratio at 1.90 is some 40% of the 6 years average. You expect to have a good stock price if the current P/B ratio is 80% of lower of the long term average. Since the dividends have just been jacked up from $.46 a share per year to $1.09 a share, the yield is also up quite a bit. The 5 year average is 4.2% yield. The current yield is 8.6%.

A yield of 8.6% is a very good yield. Also, the company has stated that it can maintain its dividend until 2015. However, if you look at comments on the internet, some people are concerned about how high a percentage this company pays from the cash flow for dividends in 2009 and worry that the dividends are not sustainable. Others note that this company has a very stable revenue stream. This company will shortly be listed on the NYSE.

One thing I have not mentioned on this stock is the Liquidity Ratio and the Asset/Liability Ratio. Both these ratios are currently very good, with 2010 ratios being at 2.10 and 1.82 respectively. Any ratio over 1.50 is good. However, I should point out that these ratios have just recently improved; the 5 year average for these ratios is 1.61 and 1.30 respectively and both these ratios have fluctuated and have not been always above 1.50. I have not discussed the Return on Equity either. Since the company has no earnings, the ROE has been negative and this, of course, is not good.

So, what do the analysts say? There are not that many analysts following this stock and the recommendations are only Hold or Underperform. The consensus recommendation would be a Hold. (See my site for information on analyst ratings.)

I have not changed my mind on this company. I do not like companies that make no profit.

Atlantic Power Corporation is a power income fund that owns interests in a diversified portfolio of power generation and transmission projects situated primarily in major U.S. markets.
This company has a collection of gas-fired plants in the US and is generally in the lower cost quadrant of generation in its region. Its web site is here Atlantic Power. See my spreadsheet at atp.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 for stocks followed and investment notes. Follow me on twitter.

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