Thursday, September 27, 2012

Atlantic Power Corp

I do not own this stock (TSX-ATP, NYSE-AT). I used to think that power companies were a good idea. However, I would not want this one. It is not making any money and it is paying a lot in distributions. Not a good idea in my books. This was an Income Trust (TSX-ATP.UN). On November 17, 2009 this company changed from an Income Participating Security (IPS) to a traditional common share structure.

This company reports in US$, but pays out dividends in CDN$. The company also reports using US GAAP rules. All this add complexity to looking at this company.

Dividends are good coming in at 7.82%. However, since most years had an earnings loss, we really have no Dividend Payout Ratio for Earnings. They have cash flow and the 5 year DPRs for Cash Flow at 85% does not look so bad at first glance, however, the DPR for the financial year ending in December 2011 was 218%. The DPR using the last 6 months of cash flow to the end of June 2012 is 126%.

Because this used to be an income trust, analysts are still reporting distributable income. The 5 year median DPR for DI is at $85%. Not too bad. However, the DPR for DI was 98% for the financial year ending in 2011 and is expected to be 103% this year.

All the bad news on this company has not stopped it from earnings a profit for investors. The 5 and 8 year total return has been at 13.9% and 12.51% per year, respectively. The portion attributable to dividends is 8.74% and 7.72% per year, respectively. The capital gain is 5.16% and 4.79% per year, respectively. As you can see, most of the return was in the distributions paid.

The number of outstanding shares has increased a lot over the past 5 and 7 years with the increase at 13% and 17% per year, respectively. Therefore we see that the revenue increased at 0.6% and 44% per year over the past 5 and 7 years, but the revenue per share has declined by 11% per year over the past 5 years and increased at 23% per year over the past 7 years.

I cannot get an earnings (or EPS) growth on this company as it has only had one profitable year since the company went public in 2004. The EPS is expected to be negative this year and next year.

Cash Flow per share has always been positive. However, the cash flow per share is down some 11.7% per year over the past 5 years. It is up by 19.8% over the past 7 years. Book value per share has increased nicely, at 26% and 17% per year over the past 5 and 7 years. (However, the book value per share is down some 29% in the most recent financials of June 2012.)

Revenue, earnings, cash flow and book value seem to bounce around a lot. For example, revenue from 2007 to 2011 is $306.2, $334.2, $228.3, $195.3, $284.90. Earnings from 2007 to 2011 are ($2.43), $1.67, ($0.30), ($0.06), ($0.50).

We can forget about Return on Equity. There have been no positive earnings and so we have no ROE figures.

The debt ratios were just ok maybe for the financial year ending in December 2011. The Liquidity Ratio was 1.04. The 5 year median Liquidity Ratio is 1.93, so this has come down a lot. The current Liquidity Ratio is 0.39. This means that current assets cannot cover the current liabilities. If you take out the current portion of the long term debt, the ratio gets better at 1.05. However, this current portion of the long term debt has not been taken care of, but is expected to be some time in late 2012 by tax equity funding. (This is all very complex stuff.)

Often companies with low Liquidity Ratios can make up for these low ratios with strong cash flow. However, since the company is paying more than the cash flow in dividends, this is not happening for this company.

The Debt Ratio is also low. It is currently at 1.42. It is best if this ratio was 1.50 or higher. At the end of the December 2011 financial year it was 1.52.

The current Leverage and Debt/Equity Ratios are a bit too high at 4.25 and 3.00 for the financial period ending in June 2012. They were better and fine at the end of 2011 at 2.86 and 1.88, respectively.

I guess that the real question is "Will this company ever become a real company?" It has revenue, but it cannot seem to earn a profit. It has positive cash flow, but cannot cover it distributions. It also has assets, but almost 30% of the assets are intangible assets and goodwill.

Atlantic Power Corporation is an independent power producer that owns interests in a diversified fleet of power generation and transmission projects located in the United States. 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. ATP owns interests in a diversified portfolio of independent, non-utility power generation projects and one transmission line situated in major U.S. markets. 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.


  1. Scary company. Great review. Will stay away!

  2. It might turn out ok and make a profit in the future. However, I would not buy it until it can show it can make a profit. I like to follow a variety of companies, and this one has made it into the TSX Utilities index.