Friday, June 7, 2013

Algonquin Power & Utilities Corp 2

I do not own this stock of Algonquin Power & Utilities Corp (TSX-AQN, OTC- AQUNF). However, I have shares in Emera Inc. which in turn owns currently some 27% of the outstanding shares of this company.

When I look at insiders trading, I find no insider selling and no insider buying. Insiders do have options. There are other options like vehicles called Rights Deferred Share Units. They also have Convertible Debentures.

The CEO has shares worth $3.2M and has options are worth $11.4M. The CFO has shares worth $0.3M and has options worth $5M. An officer has some shares and has options worth $1.8M. A director has some shares and has some options both worth little. This is just to give you an idea on insider share ownership and option values.

The 5 year low, median and high median Price/Earnings per Share Ratios are 17.86, 21.00 and 24.14. I think that these are rather high P/E Ratios for a utility. However, the current P/E Ratio is higher still at 29.15. My current P/E Ratio is based 2013 earnings estimate of $0.26 and a stock price of $7.58.

I get a Graham Price $5.08. The 10 year low, median and high median Price/Graham Price Ratios are 1.20, 1.38 and 1.51. The current P/GP ratio of 1.49 shows a relatively reasonable stock price, although it is a bit high. However, since this is a utility, I think that a good buying price would be when the P/GP is at 1.00 or lower. I believe you should be able to buy utility stocks at this sort of ratio. I find the P/GP Ratios also too high for a utility stock.

The 10 year median Price/Book Value per Share is 1.55. The current P/B Ratio is 1.72, a value some 10% higher. This shows a relatively reasonable stock price with a P/B Ratio that is not much above the 10 year median P/B Ratio.

If you look at the 5 year median Price/Cash Flow per Share, you get a Ratio of 9.47. The current P/CF Ratio is 10.38 based on 2013 CFPS of $0.73 and a stock price of $7.58. The current P/CF Ratio is only 9.8% higher which would suggest a reasonable stock price. However, I do see a problem with the CFPS estimates, which are a lot higher than the actual CFPS for 2012 of $0.35 and the 12 months Cash Flow, when you include the 1st quarter of 2013 is down 25% from cash flow for 2012. I would feel more comfortable with the CF estimates if the 1st Quarter did not have a negative cash flow.

The 5 year median Price/Sales Ratio is 2.30. The current P/S Ratio is 2.09 based on 2013 estimate of Revenue per Share of $3.63 and a stock price of $7.58. This would suggest a relatively reasonable stock price. A good thing is that sales for the 1st quarter are up and including the 1st quarter's sales give a 12 month sales increase of 36% over the sales for 2012. However, sales are expected by the analysts to be up some 85% in 2013 and I think that P/S Ratio of 2.00 or higher is a bit high for a utility stock.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold. The consensus would be a Buy. The 12 month consensus stock price is $8.65. This implies a total return of 18.21%, with 4.09% from dividends and 14.12% from capital gains.

Some analysts see this stock as purely a yields play with not much capital appreciation. Others think differently. BMO put this stock on its list of Top-15 Canadian Small Cap Stocks for 2013. Algonquin Power has just announced an increase in dividends of 9.7% for 2013 according to iPolitics.

So on some levels, the stock price looks reasonable. I think that the main problem that I have with this stock is that the company is not doing well in making a profit. I tend not to like companies that cannot make a decent profit. But, it is obvious that most analysts generally have a better opinion of this stock than I do. See my spreadsheet at aqn.htm.

This is the second of two parts. The first part was posted yesterday on Thursday and is available here.

APUC owns and operates a diversified portfolio of clean renewable electric generation and sustainable utility distribution businesses in North America. Liberty Water Co., APUC's water utility subsidiary, provides regulated water utility services. Through its wholly owned subsidiary Liberty Energy Utilities Co., APUC provides regulated electricity and natural gas distribution services. Algonquin Power Co., APUC's electric generation subsidiary, includes renewable energy facilities and thermal energy facilities. Its web site is here Algonquin Power.

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.

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