On February18, Northland Power released it's year-end results.Although I could see references to the report on several websites I was unable to view the results on any of these sites including Yahoo Finance and Bloomberg.Still I was able to get the results from the Northland website itself.No guidance was given for any of the important financial statistics;I will have to estimate using Northland's data.
Annual Performance
Northland gives annual figures for 2012,2013 and 2014 which makes for an easy comparison of their performance.Annual revenues for 2014 were $760 million which is a 57% increase from 2013 and that a further 45% increase from 2012.Profit went from $230 million in 2012 to $354 million and then $469 million in 2014;a whopping 35% increase from 2013.Adjusted EBITDA also skyrocketed;it went from $179 million in 2012 to $263 million in 2013 and then to $363 million for 2014.However the biggest increase was in the growth of total assets.Assets went from $2,518 million in 2012 to $3,063 million in 2013and finally to $4,965 million in 2014;this is a tremenduous 66% increase from 2013. Shareholder equity moved up considerably also in lockstep with total assets ;it was $873 million in 2012 and jumped to $1,050 million in 2013 and leaped to $1,600 million in 2014 (a 52% increase over 2013).Overall it might be said that Northland Power leapfrogged ahead in the two year period from 2012 to 2014.
Annual Highlights
Northland also accomplished several milestones in 2014.It has accomplished a financial close on both of it's mega projects -Gemini and Nordsee One.It is still in compliance on all it's debt covenants and it states categorically that it's dividend will be safe until 2017.It also stated in it's annual report that construction of Gemini will be on time and E1.6B of the total E2.8B required to complete the Gemini project has already been spent. That is, about 56% of the total project expenditure has already been completed.Northland expects that Gemini will be in commercial operation by late 2016 or early 2017.
Q4 Highlights
The torrid pace that Northland set during the last two years slowed down in the fourth quarter.Adjusted EBITDA increased by 12% to $93 million and free cash flow increased by only 9%.Thermal facility electricity production decreased slightly while renewable facility production increased somewhat.They also sold a woodchipping facility and the proceeds were used to pay down debt.They showed a net loss of $70 million which was largely created by a non-cash impairment charge and development costs on Nordsee One..However adjusted EBITDA of $93 million is on track to produce annual 2015 EBITDA of $390 to $415 million which is acceptable given the tremenduous increases of the last two years.
Sunday 29 March 2015
Tuesday 24 March 2015
Atlantic Power has reporting oddities
Atlantic Power reported it's fourth quarter and year-end results on February26,2015.The overall result was that both year-end and fourth quarter results were ahead of guidance.Atlantic gave 2014 guidance of $285 to $300 million for adjusted EBITDA while it actually reported EBITDA of $299 million.This blog contends that adjusted EBITDA could have been higher.It's quarterly EBITDA was $77 million in comparison to $59 for the same quarter last year.The main reason affecting the increase in both both results was the increased profit from their wind projects and a full year of operation from it's Piedmont plant.Atlantic Power (ATP) offers conservatively guidance of only $265 to $285 million for 2015.This would seem to portend worsening performance but it is really only reflecting reporting oddities.
Project Adjusted EBITDA
Most utilities use adjusted EBITDA as a measure of earnings performance.But ATP has come up with a new measure of performance called project adjusted EBITDA.This measurement is used because ATP has 28 power generation projects and doesn't own 100% of all projects.In fact, in one case (the Rockland plant) it only owns 50% of the equity but it counts 100% of earnings.This is probably not a significant factor in overall EBITDA and besides some accounting methodology allows this type of financial reporting.However there may be a few examples where Atlantic owns 80 to 90% but counts all earnings in project adjusted EBITDA.However I believe this difference in normal project accounting is offset by another practice that ATP uses.It includes in total project adjusted EBITDA unallocated corporate costs.This includes development costs for a new acquisition and administrative costs.These items do not belong in top-line EBITDA accounting.It is certainly possible that total adjusted EBITDA could be $310 million.
Dividend Restrictions
Atlantic Power has senior unsecured notes;it's report does not say when they mature.But it does say that there is a fixed charge coverage ratio.This ratio is either the ratio of fixed financing charges to adjusted EBITDA or to cash flow.For example, refinancing and repurchase of debt charges are included here.At present,ATP is not in compliance with it's fixed charge coverage ratio;it will pay off some of these charges and be in compliance in Q2 2015 only.Until then Atlantic is restricted on the payment of common dividends;it cannot exceed payment of $56 million for common dividends.In 2014 the company paid out only $33 million in dividends.So it is able to raise the dividend by about $.08 per share and still meet the covenant.This would certainly raise the share price and even allow them to raise equity capital that will soon be cheaper than debt.The choices are limited as ATP either raises more unsecured notes with tighter restrictions on financing or raises secured notes which may put restrictions on collateral ,that is it's plants.Raising the dividend and hence increasing equity capital would be a prudent way of financing.
2015 Project adjusted EBITDA
For three quarters ATP gave guidance of $285 to $305 million but in Q4 they changed it to $285 to $300 million.Nevertheless adjusted EBITDA came in at about $300 million.In late 2014 ATP either built or acquired a new plant called Ridgeline.They decided to allocate some of it's costs to total project adjusted EBITDA which brought it down to $300 million.If these costs were excluded (as they should be) project adjusted EBITDA might have been $310 to $315 million.In 2015 they will have earnings coming in from another plant and a full year of operations from the fairly new Piedmont operation.Atlantic warns that EBITDA will be reduced by the shutting down and overhaul costs for it's Manchief operation.Once again the costs should not be included but the loss of revenues from a shutdown would be.That aside, blog expects that project adjusted EBITDA for the next quarter will exceed that of Q4 ($77 million) and for the year to exceed $315 million.This may not happen unless ATP makes a few accounting procedure changes.And the share price may respond favourably, especially with a dividend increase that they can afford.
Project Adjusted EBITDA
Most utilities use adjusted EBITDA as a measure of earnings performance.But ATP has come up with a new measure of performance called project adjusted EBITDA.This measurement is used because ATP has 28 power generation projects and doesn't own 100% of all projects.In fact, in one case (the Rockland plant) it only owns 50% of the equity but it counts 100% of earnings.This is probably not a significant factor in overall EBITDA and besides some accounting methodology allows this type of financial reporting.However there may be a few examples where Atlantic owns 80 to 90% but counts all earnings in project adjusted EBITDA.However I believe this difference in normal project accounting is offset by another practice that ATP uses.It includes in total project adjusted EBITDA unallocated corporate costs.This includes development costs for a new acquisition and administrative costs.These items do not belong in top-line EBITDA accounting.It is certainly possible that total adjusted EBITDA could be $310 million.
Dividend Restrictions
Atlantic Power has senior unsecured notes;it's report does not say when they mature.But it does say that there is a fixed charge coverage ratio.This ratio is either the ratio of fixed financing charges to adjusted EBITDA or to cash flow.For example, refinancing and repurchase of debt charges are included here.At present,ATP is not in compliance with it's fixed charge coverage ratio;it will pay off some of these charges and be in compliance in Q2 2015 only.Until then Atlantic is restricted on the payment of common dividends;it cannot exceed payment of $56 million for common dividends.In 2014 the company paid out only $33 million in dividends.So it is able to raise the dividend by about $.08 per share and still meet the covenant.This would certainly raise the share price and even allow them to raise equity capital that will soon be cheaper than debt.The choices are limited as ATP either raises more unsecured notes with tighter restrictions on financing or raises secured notes which may put restrictions on collateral ,that is it's plants.Raising the dividend and hence increasing equity capital would be a prudent way of financing.
2015 Project adjusted EBITDA
For three quarters ATP gave guidance of $285 to $305 million but in Q4 they changed it to $285 to $300 million.Nevertheless adjusted EBITDA came in at about $300 million.In late 2014 ATP either built or acquired a new plant called Ridgeline.They decided to allocate some of it's costs to total project adjusted EBITDA which brought it down to $300 million.If these costs were excluded (as they should be) project adjusted EBITDA might have been $310 to $315 million.In 2015 they will have earnings coming in from another plant and a full year of operations from the fairly new Piedmont operation.Atlantic warns that EBITDA will be reduced by the shutting down and overhaul costs for it's Manchief operation.Once again the costs should not be included but the loss of revenues from a shutdown would be.That aside, blog expects that project adjusted EBITDA for the next quarter will exceed that of Q4 ($77 million) and for the year to exceed $315 million.This may not happen unless ATP makes a few accounting procedure changes.And the share price may respond favourably, especially with a dividend increase that they can afford.
Thursday 12 March 2015
The Bulletin Board
I have talked about my " notes" to companies in several blogs (both on Blogdaleupsome and Workathon).This process started with my blogs on Wordpress on a website called Blogdaleup.I used this site as a bulletin board for interested parties to read and act on or not.It was clear that there were very few visitors to the site.The site has been up for about two years and has had only about 250 visitors.Nevertheless it seemed like (at times) the suggestions were being acted upon.Often there was a considerable lag between my suggestions and the effect .It is possible that a few influential people visited it and liked the ideas.For example,a company like Call Net which was almost bankrupt got a number of suggestions which I could clearly see someone was acting upon.The stock went from $.35 to $9.00 a share which is an increase of 30 times. But the question is this;was this cause and effect or was it merely coincidence?I have offered the opinion that entrepreneurs with money saw my track record and have acted upon these"suggestions".It should be repeated again that not all these suggestions were acted upon and sometimes the stock did not go up when using my suggestions.Nobody has a perfect track record not even Wordpress.But in general they seemed to be beneficial ideas and generally they improved the companies using them.This is what I call the GM (general manager) syndrome; with the help of the bulletin board a lot of people were able to get things done with my "suggestions".There certainly was a lot of shareholder equity created by this GM syndrome.
Monday 9 March 2015
Four "small cap technology stocks
This is a blog about four technology stocks that I have made "notes" for:they are Tucows,Dragon Wave,Neulion and Pulse Data. These are considered to be four of the most promising technology stocks on the TSX.All have marketable products and are increasing their product line.However not all are expected to grow significantly in price.
The Pulse The first is Pulse Data.Pulse Data was trading at about $3.90 per share in January,2014.It continued to fall until November,2014 until it reached a price of $2.60 per share.It has gradually moved up to $3.15 per share now.Rumor has it that they have picked up two fairly large seismic data contracts with a substantial customer.
Pulse acquires and markets 2-D and 3-D imaging products.Pulse also sells seismic data and seismic services to the energy sector in Western Canada.Lastly it owns a library with seismic data covering the western Canadian Sedimentary Basin.Recently it has made agreements with three other small cap stocks to form some kind of consortium to exploit geological data.The three are Geologix,Intermap Technology and International Datacasting. It is not yet certain what additional revenues will come from this new agreement.But it is possible that it's new seismic data library may become relied on more by oil and gas customers in Western Canada and revenue here start to grow.
Dragon Wave
The second technology company is Dragon Wave.It sells high-capacity packet microwave solutions that drive IP networks.It also transmits broadband services to customers.Lastly it delivers backhaul of information on microwave networks.Often data transmission is one way with the network unused on the "backhaul".Dragon Wave has risen in price from January,2014 until November,2014 but has fallen recently to less than $2.00 per share.A rise in price from this level depends on Dragon Wave developing new products or increasing revenue from existing products.
Tucows
Tucows is a funny name for a technology stock.But it has performed better than almost all small cap stocks since last July.It was priced at $14.00 per share in July and has moved steadily up to it's present price of $24.00 per share.It released it's quarterly report recently and it had Q4 revenues of $40 million and annual revenues of $150 million.So quarterly revenues are still rising not falling.It distributes internet services,does web hosting,interenet advertising and builds some software .This company is likely to forge closer ties with Intrinsync Software in the future and pick up new revenue streams.If they are able to do this then Tucows could be heading to $30 per share.
Neulion
This is not a stock that is mentionned in my notes very often.It is a niche player and so was developing it's own product line.It got a large online sports and college contracts and makes a lot of money from internet video.It didn't seem to need help but recently has started to falter.It might be forging a bond with Automated Benefits( a very small cap technology company) which could help it to keep track of new revenues and increase profitability.Neulion had a market capitalization of $75 million in January,2014 and increased it to about $190 million in December,2014 but now it has fallen to about $165 million.It is seen that a new partnership with Automated Benefits could send the stock price up and so increase the market capitalization.
Conclusion
All four of these stocks have a solid and useful technology that is needed by it's customers.None are expected to show a decrease in revenue nor profits.But the two that are expected to show an increase in profitability and hence stock price are Tucows and Neulion.The other two are not expected to have large increases in revenues nor stock price unless they find both new partners and revenues.
The Pulse The first is Pulse Data.Pulse Data was trading at about $3.90 per share in January,2014.It continued to fall until November,2014 until it reached a price of $2.60 per share.It has gradually moved up to $3.15 per share now.Rumor has it that they have picked up two fairly large seismic data contracts with a substantial customer.
Pulse acquires and markets 2-D and 3-D imaging products.Pulse also sells seismic data and seismic services to the energy sector in Western Canada.Lastly it owns a library with seismic data covering the western Canadian Sedimentary Basin.Recently it has made agreements with three other small cap stocks to form some kind of consortium to exploit geological data.The three are Geologix,Intermap Technology and International Datacasting. It is not yet certain what additional revenues will come from this new agreement.But it is possible that it's new seismic data library may become relied on more by oil and gas customers in Western Canada and revenue here start to grow.
Dragon Wave
The second technology company is Dragon Wave.It sells high-capacity packet microwave solutions that drive IP networks.It also transmits broadband services to customers.Lastly it delivers backhaul of information on microwave networks.Often data transmission is one way with the network unused on the "backhaul".Dragon Wave has risen in price from January,2014 until November,2014 but has fallen recently to less than $2.00 per share.A rise in price from this level depends on Dragon Wave developing new products or increasing revenue from existing products.
Tucows
Tucows is a funny name for a technology stock.But it has performed better than almost all small cap stocks since last July.It was priced at $14.00 per share in July and has moved steadily up to it's present price of $24.00 per share.It released it's quarterly report recently and it had Q4 revenues of $40 million and annual revenues of $150 million.So quarterly revenues are still rising not falling.It distributes internet services,does web hosting,interenet advertising and builds some software .This company is likely to forge closer ties with Intrinsync Software in the future and pick up new revenue streams.If they are able to do this then Tucows could be heading to $30 per share.
Neulion
This is not a stock that is mentionned in my notes very often.It is a niche player and so was developing it's own product line.It got a large online sports and college contracts and makes a lot of money from internet video.It didn't seem to need help but recently has started to falter.It might be forging a bond with Automated Benefits( a very small cap technology company) which could help it to keep track of new revenues and increase profitability.Neulion had a market capitalization of $75 million in January,2014 and increased it to about $190 million in December,2014 but now it has fallen to about $165 million.It is seen that a new partnership with Automated Benefits could send the stock price up and so increase the market capitalization.
Conclusion
All four of these stocks have a solid and useful technology that is needed by it's customers.None are expected to show a decrease in revenue nor profits.But the two that are expected to show an increase in profitability and hence stock price are Tucows and Neulion.The other two are not expected to have large increases in revenues nor stock price unless they find both new partners and revenues.
Wednesday 4 March 2015
Newalta plans to reorganize
On February19, 2015 Newalta released it's fourth quarter and annual results;they also announced the proposed sale of it's Industrial Division.The main parts of which are the Stoney Creek landfill and the waste cleanup of oilfield operations.The landfill operation is not connected to any of it's other operations but the oilfield operations are connected to their new heavy oil facility that they are installing in Fort Macmurray in 2015.It is another part of their oil waste operations.The sales agreement is expected to close in Q1 2015.The expected sale price is $300 million.
The benefits
Sales for 2014 were about $363 million. So the proposed price is about 84% of the last year's sales and about 6 times gross profits and slightly above 6 times EBITDA.The falling commodity prices have not affected NAL profits nor EBITDA in Q4.The increase in EBITDA in Q4 was greater than for the year not less.Profits are still going up slightly not down. On an annual basis, sales of the Industrial Division have been constant and so has EBITDA.This kind of business does not get price increases every year nor large increases in volume every year.But there could be a significant increase in both every 5 years.There could be a jump of 10 to 20% in price and 5 to 10% in volume as the population grows.Sales could be stable in 2015 but show a good jump in 2016.This is the kind of business that would be beneficial with a royalty on sales or on gross profits.For example a 5% royalty on sales would bring the total price closer to 95% of sales in a few years.
A growing business
Both of these operations in the Industrial Division are likely to have bumpy growth.They both will increase as population increases.So a royalty might be a good way of capturing this growth.This blog suggests 5% as an initial offer but NAL may have to back down slightly.However Newalta is well aware that the multiple of gross profits is more likely to be 7 or 8 for a growing business versus 5 or 6 for a fairly stable business.With that in mind the buyer may be lucky to take a 5% royalty.
The benefits
Sales for 2014 were about $363 million. So the proposed price is about 84% of the last year's sales and about 6 times gross profits and slightly above 6 times EBITDA.The falling commodity prices have not affected NAL profits nor EBITDA in Q4.The increase in EBITDA in Q4 was greater than for the year not less.Profits are still going up slightly not down. On an annual basis, sales of the Industrial Division have been constant and so has EBITDA.This kind of business does not get price increases every year nor large increases in volume every year.But there could be a significant increase in both every 5 years.There could be a jump of 10 to 20% in price and 5 to 10% in volume as the population grows.Sales could be stable in 2015 but show a good jump in 2016.This is the kind of business that would be beneficial with a royalty on sales or on gross profits.For example a 5% royalty on sales would bring the total price closer to 95% of sales in a few years.
A growing business
Both of these operations in the Industrial Division are likely to have bumpy growth.They both will increase as population increases.So a royalty might be a good way of capturing this growth.This blog suggests 5% as an initial offer but NAL may have to back down slightly.However Newalta is well aware that the multiple of gross profits is more likely to be 7 or 8 for a growing business versus 5 or 6 for a fairly stable business.With that in mind the buyer may be lucky to take a 5% royalty.
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