Tuesday, March 31, 2015

TransAlta Corp.

Sound bite for Twitter and StockTwits is: Still think it will recover. It is making a transition from coal to natural gas electricity generation. This will take some time, but the stock should do fine again once this is completed. See my spreadsheet at ta.htm.

I own this stock of TransAlta Corp. (TSX-TA, NSYE-TAC). I bought this stock in 1987. It was a utility stock and utility stocks were considered to be good investments.

Until last year this company had occasionally increased their dividends. However, in 2014 dividends were cut almost 40%. The dividend yield was always good. The historical average and historical median dividend yields are 6% and 5.8%. The current dividend yield is 6.17%.

Because of the dividend cut, the stock price also when down so that the stock price is lower than what I originally paid for this stock 27 years ago. I paid $14.47 for this stock in 1987 and the current stock price is $11.66, down almost 20%.

However, I have still made money on this stock. My total return is 6.63% per year with capital loss at 2.04% per year and dividends at 8.67% per year. Until last year I was making around 8% per year on this stock. I am happy with an 8% total return on a utility stock. I made two purchases of this stock and my cost per share is $16.89. I have made $26.30 per share in dividends. So dividends have already paid for my stock.

Looking for growth on my spreadsheet, all I see is red. That is there has been no growth over the past 5 and 10 years. Outstanding shares have grown at 4.8% and 3.6% per year over the past 5 and 10 years. Shares have grown due to Stock Options, DRIP and Share Issues. That makes the per share values the ones to look at when valuing this stock.

Revenue is down by 1.1% and 0.8% per year over the past 5 and 10 years. Revenue per Share is down by 5.6% and 4.2% per year over the past 5 and 10 years. However, Revenue is up by 14.4% in 2014 and Revenue per Share is up by 11.6% in 2014. Most analysts do not expect much change in Revenue in 2015.

EPS is down by 10.4% and 5.1% per year over the past 5 and 10 years. Earnings were up by 292% in 2014. However, are expected to be down in 2014 and then up a bit in 2015.

Because this stock is a utility, some analysts have lately been looking at Funds from Operations (FFO) and/or Adjusted from Operations (AFFO). Looking at AFFO is just recent and I only have 4 years of data on this. However, there is no growth here either with growth down by 17.6% per year over the past 4 years. Non growth in by FFO is not quite as bad with growth down by 5.1% and 6.4% per year over the past 5 and 7 years.

Cash Flow is not quite as bad. Cash Flow had grown by 0% and 2.1% per year over the past 5 and 10 years. Cash Flow per Share is down by 1.75 and 1.4% per year over the past 5 and 10 years. Both Cash Flow and CFPS were up slightly in 2014 and are expected to increase again in 2015.

In only one year of the past 10 years has the Return on Equity been at or above 10%. The ROE for 2014 was at 3.6% and the 5 year median ROE is 3.6%. The ROE on Comprehensive Income is better in some ways and worse in other ways. The ROE was 14.9% in 2014. This ROE had been at or above 10% 3 times in the past 10 years. However, the 5 year median ROE is just 1.9%. This is because it has been lower from 2011 to 2013 and only became a good figure in 2014.

In a lot of ways the debt ratios are fine. The Liquidity Ratio for 2014 was just 0.59 and rises to 0.98 when cash flow less dividends are added in. However, if you exclude the current portion of the long term debt, it becomes 1.22 and rises to 2.03 when cash flow less dividends are considered.

The Debt Ratio at 1.65 is good. The Leverage and Debt/Equity Ratios at 2.54 and 1.54 respectively are quite normal for utilities.

This is the first of two parts. The second part will be posted on Wednesday, April 1, 2015 and will be available here. The first part talks about the stock and the second part talks about the stock price.

TransAlta Corp. is Canada's largest investor-owned, unregulated power generation and energy-marketing company. The company owns and operates power plants in North America and Australia. Its web site is here TransAlta.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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