Wednesday, July 19, 2017

Atlantic Power Corp

Sound bite for Twitter and StockTwits is: No Dividend Utility. The stock has high debt and cannot make a profit. They seem to acknowledge their problems and are try to get the debt under control. Some of the stock price testing suggests that the stock price is relatively cheap. However, they have huge vulnerabilities in their high debt level. 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. This company has recently converted from an income trust to a corporation. This company is in the TSX Utility Index. (Perhaps this is why it is recommended?)

First, I do not like their debt ratios. The Long Term Debt/Market Cap Ratio for 2016 is 2.98. If this is above 1.00 it means that the market values the company below the amount of their long term debt. If this ratio comes close to 1.00 alarm bells should ring out.

There are no debt ratios that I like. The Liquidity Ratio at 1.09 is very low. Even if you add in Cash Flow it is still 1.22 (this figure is usually cash flow after dividends, but dividends have been cut). The Debt Ratio is also low at 1.24. These ratios should be at 1.50 or better. The Leverage and Debt/Equity Ratios are very high at 22.55 and 18.13 respectively. . In the news release with the fourth quarterly results Atlantic Power Corp talks about improving their debt position.

The company cannot make a profit. This company went public in 2004, which is 13 years ago. They made a profit in only one year and that was in 2018. The company's book value has fallen by 37.6% and 13% per year over the past 5 and 10 years in CDN$ and by 41% and 14.4% per year over the past 5 and 10 years in US$.

I cannot do any Price/Earnings per Share Ratio testing of the stock price as most all the P/E Ratios are negative. The 5 year low, median and high median Price/Adjusted Funds from Operations Ratios are 7.66, 11.48 and 13.40. The current P/AFFO Ratio is 7.46 based on AFFO estimate for 2017 of $0.39 CDN$ and a stock price of $2.93CDN$. This stock price testing suggests that the stock price is relatively cheap.

I get a Graham Price of $2.50 CDN$. The 10 year low, median and high median Price/Graham Price Ratios are 0.89, 1.02 and 1.20. The current P/GP Ratio is 1.17 based on a stock price of $2.93. In this Graham Price formula I used the AFFO because it cannot calculate a Graham Price using a negative EPS. This stock price testing suggests that the stock price is relatively reasonable and but above the median.

The 10 year median Price/Book Value per Share Ratio is 1.93. The current P/B Ratio is 4.13 based on a stock price of $2.93 CDN$, $81.7M CDN$ Book Value and $0.71 CDN$ Book Value per Share. The current P/B Ratio is 114% above the 10 year median P/B Ratio. This stock price testing suggests that the stock price is relatively expensive. (Note that BV is declining.) You would get similar results if I did this in US$.

I, of course, cannot do any stock price testing on dividends as dividends were cut in 2016 after declining since 2013. The other thing to point out is that the stock used to be an Income Trust. Income Trust companies tend to pay out dividends higher than EPS and AFFO or FFO is used to determine Payout Ratios. Even the AFFO was negative in 2016. They have paid out over the past 5 years 100% of the AFFO. However, paying out the AFFO or more than it is never a good idea. Also, the company is now a corporation not an income trust.

The 10 Year median P/S Ratio at close is 1.94 US$. The current P/S Ratio is 0.61 in US$ based on a stock price $2.33 US$, 2017 Revenue estimate of $453M US$ and 2017 Revenue per Share estimate of $3.96 US$. The current P/S Ratio is some 69% lower than the 10 year median P/S Ratio. This stock price testing suggests that the stock is relatively cheap. (You will get a similar result in CDN$ terms.)

When I look at analysts' recommendations, I find Buy and Hold recommendations. There is only 4 analysts following this stock and 3 give it a Hold. The 12 months stock price is $2.93 US$ or $3.71 CDN$. This implies a total return of 25.75% with all from capital gains.

Doug Wharley on The Cerbat Gem talks about Wells Fargo increasing their increasing their stake in this company. Nick Cummings on Stock New Journal thinks that this stock is a sizzler. You have to wonder at their presentation of information. Yes P/S Ratio is low at a 0.59 currently with stock price at $2.33. At $2.40 I get P/S Ratio of 0.61. Over the past 5 years Sales are up by 40% if you look at revenue or 38% if you look at Sales per share. However, Sales were down by 26% in 2015, 5% in 2016 and year to date for March 2017 by 2%. This is in US$. Sorry, but I do not see this stock as a sizzlers. This is not well followed and the last two analysts' entries are for 2016 on Stock Chase and are Don't Buy recommendations.

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.

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 Friday, July 21, 2017 around 5 pm. Tomorrow on my other blog I will write about Canadian Banks... learn more on Thursday, July 20, 2017 around 5 pm.

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. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

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