Monday, July 18, 2016

Atlantic Power Corp

Sound bite for Twitter and StockTwits is: Rather speculative. Personally I would not buy this stock. However, they are making an effort by starting to reduce debt and cutting the dividend. See my spreadsheet on Atlantic Power Corp.

I do not own this stock of Atlantic Power Corp (TSX-ATP, NYSE-AT). Because I like utility companies and in 2010, I have read two columns that recommended this particular utility company (TSX-ATP), I decided to investigate it. After investigating this stock, my impression is that I would not touch it with a barge-pole. However, I will talk about it and upload my spreadsheet so that you can decide for yourself. I have changed my mind about this stock.

What is interesting is that in March 2014 Nizar Amarsi in a Morningstar article gives examples of Value Traps in Torstar Corp (TSX-TS.B) and Atlantic Power Corp (TSX-APT, NYSE-AT). At that time the P/B Ratio for APT was 0.58 and the dividend yield was 13%. For the year ending 2015 the P/B was 1.13 and today it is 1.40. The current dividend yield is at 0% as they will pay no dividends in 2016.

What I do not like especially is the long term debt to market cap ratio which is currently 2.19. This means that the debt is twice as high as the market cap. Any ratio approaching 1.00 is real cause for concern. The long term debt ratios have been over 1.00 since 2012. They started to reduce the debt in 2014 when it declined by 15% and again in 2015 when debt declined was 25%.

In twelve years since this stock was issued they made a profit one year that was in 2008. Yes, I know that generally people look at Distributable Income, FFO and AFFO for utilities, but only one year of profit? I rather put my money elsewhere.

Since shares have grown at 12.7% and 10.7% per year over the past 5 and 10 years, I would be personally looking at per share values to gauge growth. Revenue growth may look at fine at 16.6% and 8.6% per year over the past 5 and 10 years, but Revenue per Share not so much. Revenue per share is at 3.4% and negative 1.9% growth over the past 5 and 10 years. This is in US$ as the company reports in US$.

Distributable Income has been negative in 2014 and 2015. AFFO is expected to be negative in 2016 by analysts. According to ATP's presentation for Q1 2016 they say that AFFO for the 12 months ending March 2016 is $0.08 US$ (or $0.10 CDN$). The analyst report I read acknowledged this and still put AFFO for 2016 at a negative $0.04.

The Graham Price calculation cannot handle negative values. If we use the AFFO for Q1 2016, you get a current Graham Price of $2.30. The current Price/Graham Price Ratio would be 1.41 based on a stock price of $3.23. The 10 year low, median and high median P/GP Ratios using AFFO would be 0.89, 1.02 and 1.16. This would suggest that the stock price is relatively expensive.

The 10 year Price/Book Value per Share is 1.93. The current P/B Ratio is 1.40 a value some 27% lower based on BVPS of $2.31 and a stock price of $3.23. This testing would suggest that the stock price is relatively cheap. One point to make is that BVPS has been falling with it falling by 17.6% and 2% per year over the past 5 and 10 years. A falling BVPS is not a good sign.

I only have AFFO values for 5 years. The 5 year P/AFFO low, median and high median ratios are 9.58, 11.49 and 13.77. These ratios are a little high for P/AFFO ratios, but they are not extraordinarily high. The current P/AFFO Ratio is 31.73 based on a stock price of $3.23 and AFFO for the last 12 months of $0.10. This testing suggests that the stock price is relatively expensive.

I cannot do any dividend yield tests because this only works well with dividend growth stocks and this stock has eliminated its dividend. It is hard to know how valid P/S Ratio or P/CF Ratio testing is because analysts expect growth in Revenue and Cash Flow but both declined in the first quarter of 2016.

When I look at analysts' recommendations I find Buy, Hold and Underperform Recommendations. The consensus would be a Hold. The 12 months stock price consensus is $2.77 US$ or $3.59 CDN$. This implies a total return of 11.27% with 0% from dividends and 11.27% from capital gains.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see that report here.

See what analyst say about this stock on Stock Chase. There is only one comment for 2016 and it is negative. Not many analysts follow this stock. On the Press Telegraph we hear that recent analysts' reports show both rate this stock a Sell. A note in Lawyers Weekly state that a plaintiff tried to start a class action again this company alleging that the company's former CEO and CFO had misrepresented the company's ability to maintain the existing dividend level. This failed. This law suit is more fully explained in a recent article in Lexpert.

The last stock I wrote about was about was Artis REIT (TSX-AX.UN, OTC-ARESF)... learn more . The next stock I will write about will be Alaris Royalty Corp (TSX-AD, OTC-ALARF)... learn more on Wednesday, July 20, 2016 around 5 pm. Tomorrow on my other blog I will write about Dividend Growth to 2015 and 2007.... learn more on Tuesday, July 19, 2016 around 5 pm.

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 Corp.

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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