Friday, March 22, 2019

TransAlta Corp

Sound bite for Twitter and StockTwits is: Dividend Paying Utility. The stock price is cheap to reasonable. It seemed to hit the bottom in 2016 and has been recovering since. This recovery will probably take a while. There is some insider buying and investment firm wants board seats. See my spreadsheet on TransAlta Corp.

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. I sold some in 2000 as the stock price was below what I had paid for it. I bought some more in February 2009 because it was relatively cheap and it seemed to be recovering. I sold more in August 2012 as this company was doing poorly again. I was wondering if I should ditch this company for good or hold for a while longer.

When I was updating my spreadsheet, I noticed they are destroying shareholders’ value. I remember being at a Money Show some years back and a presenter said the company had been destroying shareholders’ value for 25 years. Now they have been doing it for 30 years. I look at my spreadsheet and all there seems to be is red.

The company used to pay a good dividend yield. It is now the lowest because of dividend cuts. The current dividend is low at just 1.76%. The 5, 10 and historical median dividend yields are 5.31%, 5.39% and 5.66%. The past dividends were in a good range of 5% and over.

The Dividend Payout Ratios are very poor. They have not been able to afford their dividends since 2011. Analysts do not think that they will be able to afford their dividends until 2021. Analysts seem to tend to the optimistic and the further out the predictions the less they are reliable. The DPR for EPS for 2018 is negative and the 5 year coverage is also negative. The DPR for CFPS is good and for 2018 it is 7% with 5 year coverage at 18%. Analysts feel that the current dividend is safe.

Debt Ratios are fine except for the Long Term Debt/Market Cap Ratio. The Long Term Debt/Market Cap Ratio is very high at 1.96. This I not a good situation. However, this ratio is heavily dependent on the stock price and this company took a hit to the stock price because of problems and is now recovering from when it hit the bottom in 2016. The investment in TransAlta Renewables is worth over $8.00 a share.

The Liquidity Ratio for 2018 is 1.50. The 5 year median Liquidity Ratio is low at 1.28. This is the first year Liquidity Ratio has been good. The Debt Ratio for 2018 is 1.78 with 5 year median at 1.67. The Leverage and Debt/Equity Ratios are 2.28 and 1.28 with 5 year median ratios at 2.74 and 1.74. These are rather typical for this sort of company.

The Total Return per year is shown below for years of 5 to 31 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.

Shareholders have not done well since 2011.

From Years Div. Gth Tot Ret Cap Gain Div.
2013 5 -17.38% -12.01% -16.14% 4.14%
2008 10 -32.89% -7.97% -13.67% 5.70%
2003 15 -11.50% 0.08% -7.68% 7.76%
1998 20 -8.71% 0.39% -6.75% 7.14%
1993 25 -6.99% 4.94% -3.93% 8.88%
1988 30 -5.80% 6.27% -2.98% 9.25%
1987 31 -5.49% 6.02% -3.00% 9.02%

The 5 year low, median, and high median Price/Earnings per Share Ratios are -6.47, -7.73 and -8.99. The corresponding 10 year ratios are 1.87, 3.49 and 4.78. The corresponding historical ratios are 14.85, 15.26 and 21.19. The current P/E Ratio is -445.00 based on a current stock price of $9.10 and 2019 EPS estimate of -$0.02. Because of negative earnings, no conclusion can be reached on the stock price using P/E Ratios.

I get a Graham Price of $8.16. The 10 year low, median, and high median Price/Graham Price Ratios are 1.01, 1.18 and 1.32. The current P/GP Ratio is 1.11 based on a stock price $9.10. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a 10 year median Price/Book Value per Share Ratio of 1.53. The current P/B Ratio is 1.26 based on Book Value of $2,055, Book Value per Share of $7.23 and a stock price of $9.10. The current ratio is 18% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median and close to being cheap.

I get an historical median dividend yield of 5.66%. The current dividend yield is 1.76% based on dividends of $0.16 and a stock price of $9.10. The current dividend yield is some 69% below the historical median. This stock price testing suggests that the stock price is relatively expensive.

The 10 year median Price/Sales (Revenue) Ratio is 1.50. The current P/S Ratio is 1.16 based on 2019 Revenue estimate of $2.237, Revenue per Share of $7.87 and a stock price of $9.10. The current ratio is 23% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

Results of stock price testing is that the stock price is probably cheap. Here again, you cannot ignore the P/S Ratio which says it is cheap. However, it would be much better if the revenue was growing and not declining. Both the P/GP Ratio and the P/B Ratio tests are valid. One says it is close to cheap and the other that it is below the median. The dividend yield is not a good one because of the declining dividend.

When I look at analysts’ recommendations, I find Buy (2) and Hold (8). The consensus would be a Hold. The 12 month stock price is 9.00. This implies a total return of 0.66% with capital loss of 1.10% and dividends of 1.76% based on a current stock price of $9.10.

See what analysts are saying about this stock on Stock Chase . Comments are more positive than I expected. Andrew Walker on Motley Fool thinks this is a worthwhile stock for a buy and hold portfolio. A writer on Simply Wall Street says this stock is still cheap. A Canadian Press article on CBC News Canada says a Dallas Based Investment firm wants board representation to increase the value of this company. Ash Bar on Z Tribune talks about recent analyst ratings.

TransAlta Corp is an independent power producer based in Alberta, Canada. The company owns more than 70 power plants in Canada, the Western United States, and Australia. TransAlta's net generating capacity is approximately 25% coal-fired and 25% natural gas-fired. The remaining 50% consists primarily of hydroelectric plants and wind energy farms. TransAlta also has an energy trading and marketing business and owns transmission lines. Its web site is here TransAlta Corp.

The last stock I wrote about was about was Enbridge Inc. (TSX-ENB, NYSE-ENB) ... learn more. The next stock I will write about will be TransCanada Corp (TSX-TRP, NYSE-TRP) ... learn more on Monday, March 25, 2019 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.

No comments:

Post a Comment