Friday, December 8, 2017

Northland Power Inc.

Sound bite for Twitter and StockTwits is: Dividend Utility Stock. The stock seems on the relatively expensive side currently. I do not like the Debt/Market Cap Ratio. A positive is that the just raised their dividends. There is a possibility that it will become a dividend growth stock. 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 company changed from an income trust company to a corporation in 2011. They have kept their dividends flat since 2007 and have only just announced a dividend increase effective in 2018. Income trust company could afford to pay dividends higher than their EPS, but corporations cannot.

Since becoming a corporation they have paid out more than they have earned. The Dividend Payout Ratio for 2016 is 169% with 5 year coverage of 900%. The DPR for 2017 is expected to be 107% and for 2018 it is expected to be 82%. The DPR for cash flow has been better with the DPR for CFPS at 44% and 5 year coverage at 47%.

The first dividend increase after some 10 years of flat dividend says that the company is confident about the future. Analysts seem to agree with the company on this. This might become a dividend growth stock again.

Outstanding shares have increased by 7.54% and 10.75% over the past 5 and 10 years. This means that to see if there is growth you have to look at the per share values. This can make a difference. For example Revenue has grown by 25.27% and 20.89% per year over the past 5 and 10 years. Revenue per Share has grown at 16.48% and 9.16% per year over the same time periods.

The Long Term Debt/Market Cap Ratio for 2016 is 1.46 and the current one is 1.65. This means that the market is pricing this stock below what it has in Long Term Debt. This says that the long term debt is way too high.

I do not like some of the other debt ratios either. The Liquidity Rati is 1.40 for 2016. When you add in cash flow after dividends the ratios is good at 2.50. This means that the company depends on cash flow to give adequate coverage to current liabilities. A lot of utilities are in this situation. The Debt Ratio is low at 1.19 for 2016 and is currently at 1.17. What I like to see is this ratio at 1.50 or higher for safety's sake. The problem with low debt ratios is that a company could get into trouble in a recession.

The Leverage and Debt/Equity Ratios are also very high. For utilities these ratios tend to be high, but for this stock they are higher than for most utilities at 6.30 and 5.30 for 2016 and current ones at 6.89 and 5.89. By the way the 5 year median ratios are a lot lower and better at 2.98 and 1.98. However, I think the one to be worried about is the Long Term Debt/Market Cap Ratio.

The Return on Equity is low with the one for 2016 at 8.8%, but the 5 year median at just 0.1%. The Comprehensive Income ROE is lower for 2016 at 6.2%, but the 5 year median is better at 3.6%. However, all these ROEs are low.

The 5 year low, median and high median Price/Earnings per Share Ratios are negative values as is the 10 year values. This is because of a number of years of earning losses. The 20 year or historical values are 13.13, 15.34 and 17.89. The current P/E Ratio is 23.52 based on a stock price of $23.76 and 2017 EPS estimate of $1.01. This stock price testing suggests that the stock price is relatively expensive.

The P/E Ratio for 2018 is 16.27 based on a stock price of $23.76 and 2018 EPS estimate of $1.46. If we use the 12 month EPS to the end of the third quarter of $1.54 the P/E Ratio becomes 15.43 based on a stock price of $23.76. Using either one of these P/E Ratio gives a stock price in a reasonable range, but still above the median.

The 10 year low, median and high median Price/Graham Price Ratios are 1.93, 2.20 and 2.47. The current P/GP Ratio is 2.52 based on a stock price of $23.76. This stock price testing suggests that the stock price is relatively expensive. The P/GP Ratios are very high for a utility stock. The problem is the number of years of low earnings and earning losses that this company has had.

I get a 10 year median Price/Book Value per Share of 3.31. The current one is 6.08 a value some 83.5% higher. The current P/B Ratio is based on a Book Value of $683M, Book Value per Share of $3.91 and a stock price of $23.46. I get the book Value of $683.6M with Gross Book Value of $1,423.4M, Non-Controlling Interest of $479M and Preferred Shares of $260.9M for a net of $683.6M. This stock price testing suggests that the stock price is relatively expensive.

A problem with the book value is that it has declined by 6.8% and 7.5% per year over the past 5 and 10 years. A declining book value is never good. It can also make the Return on Equity (ROE) look better than it actually is.

I get an historical median dividend yield of 8.06%. Because this company used to be an income trust I also looked at the dividend yield median since 2009. The median is 6.45%. In both cases, the current dividend yield is lower at 5.05%. For the median since 2009 it is some 21.7% lower. This stock price testing suggests that the stock price is relatively high.

There is only one test where this stock looks cheap. The 10 year Price/Sales (Revenue) Ratio 4.11. The current P/S Ratio is 3.13 a value some 23.7% lower. The current P/S Ratio is based on 2017 Revenue Estimate of $1,325M, Revenue per Share of $7.58 and a stock price of $23.76. This stock price testing suggests that the stock price is relatively cheap. However, on the other hand the P/S Ratios for this stock are very high for a utility.

When I look at analysts' recommendations, I find Strong Buy (3); Buy (6) and Hold (3) recommendations. The consensus recommendation would be a Buy. The 12 month stock price consensus is $26.43. This implies a total return of 16.29% with 11.24% from capital gains and 5.05% from dividends based on a current stock price of $23.76.

Jesse Mackey on Stock News Times talks about some insider selling and some research analysts reports. JCTY Staff Writer on JCTY News says that the stock is neither over nor undervalued. Ploutos Investing on Seeking Alpha does a review of this company. Generally to read articles on Seeking Alpha you have to register, but it is free and they do have good articles. See what analysts are saying about this stock on Stock Chase. They generally like this company, but one analyst thinks it is expensive.

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.

The last stock I wrote about was about was Chesswood Group Ltd. (TSX-CHW, OTC-CHWWF)... learn more. The next stock I will write about will DHX Media Ltd (TSX-DHX.B, OTC-DHXMF)... learn more on Monday, December 11, 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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