Northland Power Inc.

Sound bite for Twitter and StockTwits is: Not div. growth, not cheap. With 3 earnings losses in the past 5 years, they do not even come close to covering dividends with earnings. I do not like the debt ratios. Comprehensive Income for 2014 is a lot lower than Net Income. See my spreadsheet on Northland Power Inc.

I do not own this stock of Northland Power Inc. (TSX-NPI, OTC-NPIFF). This company is into generating electric power. I have a lot invested in pipelines and I would like to have more invested in electric power as my utilities investment. I read a report on this stock that said it was a good defensive stock to buy. That is, it is a good stock to hold in a stock market correction. I can certainly see the logic of using utility stocks as defensive stocks.

This is not a dividend growth company. It has not raised its dividend in the last 5 years. In fact the last time that dividends were raised was 2007. The other problems I see with dividends is that they cannot afford the dividends are they paying now. Over the past 5 years, EPS is a loss of 0.48 in total. So this company has not been able to cover any of the dividends paid via earnings for the past 5 years. This is a cautionary note.

The story is a better when looking at coverage from cash flow. In this case CFPS can cover 68% of the dividends paid over the past 5 years. Analysts do not think that earnings will cover dividends from 2015 to 2017. They also think that dividends will be around 75% of the CFPS for 2015 and 2016 and drop to 43% of CFPS for 2017.

Outstanding shares have increased by 14.6% and 12% per year over the past 5 and 10 years. Outstanding shares have increased due to Debenture Conversions, Share Issues and DRIP. Because of the increase in shares, it is the per share values that really matter. Revenue growth is good, as is Cash Flow. EPS is non-existent.

Revenue has grown at 30% and 23% per year over the past 5 and 10 years. Revenue per Share has grown at 13.5% and 6.8% per year over the past 5 and 10 years. Analysts do not expect any growth over the next 2 years. If you compare the 12 month period to the end of 2014 and the 12 month period to the end of the third quarter, Revenue is down by 2%.

I have already covered EPS. Cash Flow has grown by 36% and 22% per year over the past 5 and 10 years. CFPS has grown at 18.8% and 8.6% per year over the past 5 and 10 years. Analysts expect cash flow to decline by some 32% in 2015. If you compare the 12 month period to the end of 2014 and the 12 month period to the end of the third quarter, Cash Flow is up by 9.4%.

Another cautionary note is that the ROE on net income is a negative 9.7% for 2014, but the ROE on comprehensive income is a negative 19.2%. This suggests that the earnings are probably worse than they seem.

Another cautionary note is poor debt ratios. Both the Liquidity and Debt Ratio has basically been falling since around 2004. The Liquidity Ratio for 2014 was 0.73. If you add in cash flow after dividends, it is still very low at 1.14. When the Liquidity Ratio is less than 1.00, it means that current assets cannot cover liabilities. The Debt Ratio is low for 2014 at 1.29.

The Leverage and Debt/Equity Ratios are too high. The ones for 2014 were at 4.51 and 3.51. These are even high for utilities companies.

The best I can calculate for the Graham Price is $2.17. If they do earn a profit next year as suggested by analysts, the Graham Price could move up to $6.50. The 5 year low, median and high median Price/Graham Price Ratios are 1.31, 1.48 and 1.73. These are rather high for a utility. The current P/GP Ratio is 8.07 based on a stock price of $17.49. If I use the Graham Price of 2016, the P/GP Ratio is 2.69. However, you look at this testing it is suggesting that the stock price is relatively expensive. It is also expensive on an absolute basis whether you are using a ratio of 2.69 or 8.07.

I get a 10 year Price/Book Value per Share Ratio of 2.02. The current P/B Ratio is 3.91 based on BVPS of $4.47 and a stock price of $17.49. The current P/B Ratio is some 93% higher than the 10 year ratio. This stock price testing suggests that the stock price is expensive. Problem really is that BVPS is dropping like a stone. Over the past 5 years, BVPS is down 16.4% per year.

This company used to be an income trust and therefore had rather high dividend yields. Because of this I will only look at the 5 year median dividend yield only. The 5 year median dividend yield is 6.52%. The current dividend yield at 6.17% is some 5.3% lower. The dividend yield of 6.17% is based on dividends of $1.08 and a stock price of $17.49. This stock price testing suggests that the stock price is relatively reasonable, but above the relative median.

When I look at analysts' recommendations, I find Buy, Hold and Underperform recommendations. Most of the recommendations are a Buy and the consensus recommendation is a Buy. The 12 month consensus recommendation is $19.83. This implies a total return of 19.55%, with 6.17% from dividends and 13.38% from capital gains. Ideally long term investors should buy good companies cheap. This company is not good (i.e. cannot make a profit) and it is not cheap.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

Northland Power Inc. indirectly owns interests in power projects. Northland's assets comprise facilities that produce electricity from "clean" natural gas and "green" renewable sources such as wind and biomass. Electricity generation is sold under long-term PPAs with creditworthy customers, and any fuel for natural-gas-fired projects, where required, is purchased under long-term contracts to assure stability of operating margins. This company operates in Canada, US and Germany. Its web site is here Northland Power Inc.

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.

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