I own this stock of AltaGas Ltd (TSX-ALA, OTC- ATGFF). I originally bought this stock in 2009. I bought more stock in 2009 and then in 2010 and also 2012. I have made a total return of 31.62% per year on this stock with 23.93% from capital gains and 7.69% from dividends. I like this stock and have some 3.8% of my portfolio in it.
The insider trading report shows some $3.1M of insider selling and a bit of insider buying with a net of insider selling of $2.9M. The selling seems to be of stock options. Insiders have options and also option like things called Rights Performance Units and Rights Restricted Units.
The CEO has shares worth $44.8M and has options are worth $43.7M. The CFO has shares worth $0.8M and has options worth $7.8M. An officer has shares worth $1.3M and has options are worth $0.9M. A director has no share and has options worth $1.4M. This is just to give you an idea on insider share ownership and option values.
I have 5 year low, median and high median Price/Earnings Ratios of 13.88, 16.25 and 18.61. Even with the drop in stock price yesterday, the current P/E Ratio is 19.09 based on 2013 earnings of 1.41 and stock price of $34.90. This shows that the stock price is on the high side.
I get a Graham Price of $23.06 and the 10 year low, median and high median Price/Graham Price Ratios are 0.98, 1.22 and 1.43. The current P/GP Ratio 1.51 based on a stock price of $34.90. This also shows a relatively high stock price.
I get a 10 year median Price/Book Value per Share stock price of 2.50 and a current P/B Ratio of 2.08 which is some 83% of the 10 year median and shows that the stock price is quite reasonable. (To be cheap, the current P/B Ratio would have to be at 80% or less of the 10 year P/B Ratio.)
The Dividend Yield is not a good test of the stock price as the dividend was cut due to the change of this company from an Income Trust to a corporation. It was felt that the dividend yield on these stocks would move to the 4 to 5% range. At a current 4.13%, it has moved to the bottom of this range and this suggests a reasonable stock price.
If you look at Cash Flow, I get on 5 year P/CF on the median price of 8.20. If you use CF for the last 12 months (that is to the end of 2012 and last financial statement), you get a P/CF of 14.48. This would suggest that the stock price is rather high.
When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform. The consensus recommendation would be a Buy. The 12 month consensus stock price is $37.10. This implies a 10.43% total return with 4.13% from dividends and 6.3% from capital gains.
Yesterday AltaGas Ltd announced the purchase of Blythe Energy. At the same time, the stock price dropped. See article in Market Wire. In the grand scheme of things, you would normally treat this as a buying opportunity. One problem I see is that the stock did not really drop enough to be called cheap. So, it is not much of a buying opportunity.
B.C. government's plan for new taxes on LNG exports could create problems and uncertainty for companies like AltaGas Ltd.
A lot of analysts like this company, but not all of them do. I think that the stock price is a bit too high, even with the price drop on Monday. A lot of utility companies have rather high stock prices at this point.
The Liquidity Ratio is a bit low. This happens on utilities companies and they generally make up for this with cash flow. However, this company, currently is paying too much of the cash flow in dividends. This will correct over time and is a problem for a number of companies that switched from income trusts to corporations. The ROE for the last couple of years is not good at this point and this will probably adjust itself over the next couple of years also.
AltaGas operates physical assets and provides essential services to customers who produce and consume natural gas and power. Their gas business provides gathering, processing, transportation, storage and marketing of natural gas and natural gas liquids. Their power business generates and delivers power in Alberta and British Columbia and is developing a significant portfolio of renewable power projects. Its web site is here AltaGas. See my spreadsheet at ala.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 or StockTwits.
I cannot see how this stock is worth considering. Based on the info I get from google financial, the earnings has been less than the dividends for the past 2 years.
ReplyDeleteIn 3 of the last 4 years the stock has had negative cash flow, the last year being the worse.
It seems to me that they are funding the dividends by selling more stock and increasing debt.
Unless one thinks this is a turn-around situation, there is little data supporting why this stock is worth considering, imho.
I do not know why people say this company has a negative cash flow. It does not. Cash Flow has gone up and down, but it has not been negative.
ReplyDeleteYou can see this by looking at the cash flow statements. What you should say is that cash flow declined 3 of the last 4 years. This is not unusual when cash flow can fluctuate.
The stock is getting close to covering its dividends by the earnings. A lot of old Income Trusts have this problem, but the company is on to way to solving them.
Financing has been used for acquisitions. Look at the cash flow statement.
I should have been more precise, I meant Free Cash Flow, which is the gold standard for me.
ReplyDeleteThe data at google.com shows that this company has negative free cash flow. This the the cash available for the company to pay dividends amongst other things.
If the company is not a growth company and if it does not generate FCF then why would one bother?
As stated, unless this is viewed as a turnaround situation, this stock may not be worth considering.
Yes, you should be more precise. However, I disagree with you on the analysis of this stock.
ReplyDeleteLook at what Investopedia says about free cash flow. “It is important to note that negative free cash flow is not bad in itself. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run.” This company is making some large investments.
It seems to me that you are looking at ALA as a potential turn around situation, you may be right.
ReplyDeleteFrom my perspective, all the metrics says this is dead money - go here:
http://ca.moneycentral.msn.com/investor/invsub/results/compare.asp?Page=TenYearSummary&symbol=CA%3aala
and browse around at the ten year data. I am no genius but I do not see a good story at all. I think there are better places to put my money.
It is interesting to see how different people interpret the same data - and I am not saying I am correct, just bringing a different perspective.
I do not see a turnaround situation. What I see is a company that is overpriced. I did not suggest anyone buy it because it is overpriced.
ReplyDeleteI see a company that is rather successfully navigating from an income trust to a corporation. You do not seem to have looked at my spreadsheet on this company. I find it rather easy to navigate than the data on MSN. You might also want to view Stock Chase.
You also seem to be trying to reduce companies to a single figure of FCF. This is not a good idea.