Transalta Power reported it's second quarter revenues on August 10,2015.This is a stock that I have owned in the past and have covered recently in Blogdaleupsome (on Blogger).It's operational statistics were all down this quarter and some of them considerably down.Recently it transferred it's Canadian coal operations into a separate subsidiary called Transalta Renewables and did pick up some cash here.It is also starting to diversify which may have provided a backstop to a stock that had a bad quarter.
Operational Statistics
Revenues were $438 million compared to $593 million in the first quarter and a net loss of $120 million compared to net earnings of $19 million in the first quarter.While earnings per share were negative $.47 per share compared to $.03 per share in Q1.There was a dramatic change in operating cash flow;it had a decrease of 176% from the same quarter in 2014. A financial analysis service called Capital Cube calls this reduction average amongst it's peers.But this blog calls it a dramatic reduction in cash flow.Transalta also shows operational figures for it's subsidiary,Transalta Renewables.All the figures show only a slight reduction from the last quarter and cash flow had only a decrease of 9%.This blog expects Transalta Renewables to show improvement in both the third and fourth quarter.This has also helped to buoy up the Transalta stock price.
Canadian coal Operations
Transalta told investors in their last report that they were modernizing their coal operations.So some of this operation was shut down for upgrading in the second quarter.This lowered their revenues for the second quarter but TA says that operation has been finished now.This will be reflected in the next quarter's results.TA adds that their results from the Canadian coal and Energy Marketing division were well below expectations.They expect this division to deliver $40 to $60 million in revenues for the year.So it will deliver a stronger performance in the second half.
Forecasts for the Second half
Some brokers are expecting that the price of oil will move up in the second half and push up the price of Transalta shares with it.Capital Cube appears to be one of those.But this blog remains cautious because of the tremenduous change in the cash flow.Like many other prognosticators I too expect the price of oil to bounce back but not to hit $60 a barrel by year end.I think that $53 to $57 per barrel is more reasonable.This may not be enough to produce positive net earnings (at least for the third quarter).Also TA had EBITDA of $1100 for 2014 and for the first half had only EBITDA of about ($40 million).Even a good second half will not bring EBITDA to $500 million.This is too big a drop to see the price move beyond the $7 range.In fact, it still has some downside risk.
My Forecast
I did a blog on Transalta on my other blog on Blogger called Blogdaleupsome after the first quarter results.The stock price was hovering around $12 per share and EBITDA for 2014 was $1100.It was clear that the spot price of power in Alberta was low but I counted on a quick recovery and forecasted Transalta to be at $15 a share.However the price of oil went down much more than forecasted as demand for power fell.Now the stock price is around $7 per share and EBITDA is at ($40 million) for the first half.So it does not appear that a quick rebound is too likely.
That said Transalta has a few things going for it that will prevent it from falling much further now.Their Canadian coal operations have been modernized and their marketing group is expected to deliver $40 to $60 million for the second half.They also expect to deliver $10 to $20 million from their new Australian operations for this year.They will need to modernize more of their operations but a return to profitability of the Canadian coal operations should be sufficient to keep TA close to it's present price of $6.87 and ready to move up a little in the fourth quarter.
Sunday 30 August 2015
Sunday 16 August 2015
Huronia VIII- The land of milk and honey
This is part of a continuing series on consulting and advising small towns in the vicinity of Lake Simcoe and Kawartha Lakes on options they could have to increase their growth and population.Huronia VII was on Lindsay and discussed the possibility of constructing a small or maybe a large marina just downstream from the lock in Lindsay.Huronia VIII takes a different approach completely;it looks at agricultural processing in Lindsay.
The Usual Platform
Many small towns need a platform to grow from a town of 20,000 or under to a town of 30,000 to 50,000.The usual platform is agriculture or lumber processing.There are quite a few towns in Ontario that are in the 15,000 to 20,000 population category that want to increase in size to 25,000 to 30,000 and then bigger.This growth gives the municipal government the means to do more things.This gives the town more facilities.
Towns in this higher tier of population include Hanover,Owen Sound and Orangeville.Towns in the lower tier of population include Lindsay, Collingwood,Wasaga Beach,Midland, Port Elgin and many others.All towns in this tier count on growing their econonomy through tourism.It is a natural process because it is easy to do;these are not "high tech" jobs.The problem is that there are only so many tourist dollars to go around.Not all the towns can benefit to a large degree from the tourist dollar.Also the towns benefit only for a certain period of time.And the jobs that are added by tourism are low paying service jobs.Often this means that two or three more jobs are added at the Mcdonald's Restaurant and Tim Hortons in the summer and released in the winter. Often the towns that move to the next tier have agricultural processing or lumber processing.These jobs that are added are permanent jobs.There are many kinds of processing that a town can adopt but it depends on the kind of land around the town.Lindsay, for example, does not have deep soil but is suitable for beef and dairy farming and growing corn and cereals (or grains)This would naturally lead to dairy and meat processing and grain processing.But probably it would allow specialized processing such as sausage production and cheese or yogurt production.But in Lindsay's case dairy production is almost impossible because of the milk plant in Bobcaygeon.It must look at other possibilities.
Speciality processing- grains and honey
One form of processing that is not so popular is making honey- an apiary.There aren't as many bees nor honey produced but on the other hand honey consumption is down also according to Statistics Canada.The price of honey has been steady recently but has increased over the last ten year period.There is an apiary in Eganville (north of Pembroke) but it is almost closed.This might make a secondary operation to work together with one in Lindsay.This new and combined operation could serve much of central and eastern Ontario.This is a longshot but if it worked would add income and a few new jobs in Lindsay.
The most likely kind of agricultural processing to benefit Lindsay is processing grain.Lindsay could have a grain processing plant to serve it's needs and the surrounding area.It is true that a bigger flour mill (such as in Newmarket) could produce flour cheaper than in Lindsay.But the cost of transportation must be added to it.In addition,Lindsay would not have to rely on only one source.It is possible that good local flour may be sold here even if at a premium because it would have local and fresh flavour.It could be sold to all the local bakeries such as the Kawartha Bakery in Lindsay.There are also other bakeries in town and in Fenelon Falls and Bobcaygeon that might be customers.
The Usual Platform
Many small towns need a platform to grow from a town of 20,000 or under to a town of 30,000 to 50,000.The usual platform is agriculture or lumber processing.There are quite a few towns in Ontario that are in the 15,000 to 20,000 population category that want to increase in size to 25,000 to 30,000 and then bigger.This growth gives the municipal government the means to do more things.This gives the town more facilities.
Towns in this higher tier of population include Hanover,Owen Sound and Orangeville.Towns in the lower tier of population include Lindsay, Collingwood,Wasaga Beach,Midland, Port Elgin and many others.All towns in this tier count on growing their econonomy through tourism.It is a natural process because it is easy to do;these are not "high tech" jobs.The problem is that there are only so many tourist dollars to go around.Not all the towns can benefit to a large degree from the tourist dollar.Also the towns benefit only for a certain period of time.And the jobs that are added by tourism are low paying service jobs.Often this means that two or three more jobs are added at the Mcdonald's Restaurant and Tim Hortons in the summer and released in the winter. Often the towns that move to the next tier have agricultural processing or lumber processing.These jobs that are added are permanent jobs.There are many kinds of processing that a town can adopt but it depends on the kind of land around the town.Lindsay, for example, does not have deep soil but is suitable for beef and dairy farming and growing corn and cereals (or grains)This would naturally lead to dairy and meat processing and grain processing.But probably it would allow specialized processing such as sausage production and cheese or yogurt production.But in Lindsay's case dairy production is almost impossible because of the milk plant in Bobcaygeon.It must look at other possibilities.
Speciality processing- grains and honey
One form of processing that is not so popular is making honey- an apiary.There aren't as many bees nor honey produced but on the other hand honey consumption is down also according to Statistics Canada.The price of honey has been steady recently but has increased over the last ten year period.There is an apiary in Eganville (north of Pembroke) but it is almost closed.This might make a secondary operation to work together with one in Lindsay.This new and combined operation could serve much of central and eastern Ontario.This is a longshot but if it worked would add income and a few new jobs in Lindsay.
The most likely kind of agricultural processing to benefit Lindsay is processing grain.Lindsay could have a grain processing plant to serve it's needs and the surrounding area.It is true that a bigger flour mill (such as in Newmarket) could produce flour cheaper than in Lindsay.But the cost of transportation must be added to it.In addition,Lindsay would not have to rely on only one source.It is possible that good local flour may be sold here even if at a premium because it would have local and fresh flavour.It could be sold to all the local bakeries such as the Kawartha Bakery in Lindsay.There are also other bakeries in town and in Fenelon Falls and Bobcaygeon that might be customers.
Monday 3 August 2015
Atlantic Power strengthens balance sheet
On July27,2015 Atlantic Power had a press release describing two events that strengthened their balance sheet and lowered their risk profile.These facts are not yet recorded in the other databases so this blog will rely on facts given in the press release..ATP used most of the proceeds (of $350 million) to complete the early redemption of $311 million of 9% senior unsecured notes.They redeemed them early and so had to pay $104.50 to par;they were due to expire in November 2018.The total cost of redemption then was $330 million.The extra expenses of $20 million will be recorded in the next quarterly report.
Sold the wind farm
Atlantic Power had 5 wind power plants in Idaho and Oklahoma.ATP sold them to Sun Edison and made a large capital gain.In fact, they made about $350 million from the sale and transferred $250 million of debt to the purchaser.So most of the proceeds paid off the $330 million early redemption of the senior unsecured notes.Atlantic Power states that it now has consolidated debt of $1.1 billion and this is a reduction of $800 million since the end of 2013.However Qtrade (a broker) shows more debt on their books than this.Probably ATP's data is more accurate here.Atlantic also shows that there was $250 million of debt on the wind assets that has been eliminated with the sale of the wind assets.
Atlantic adds that this is the early redemption of it's most expensive debt and over 9 months it has reduced total debt by almost $800 million.It, of course,will continue normal debt reduction by amortizing it's term loans and project debt.And now it has remaining corporate debt of about $305 million (in convertible debentures) which mature in 2017 and 2019.Atlantic is trying to lengthen their maturities.
Ontario Superior Court denies motion
On July 24, 2015 the Ontario Superior court of Justice issued a decision denying the plaintiff's motion for leave and certification of a class action suit against ATP.The Superior court concluded that there were no misrepresentations about disclosing material changes by the defendants and no possibility that the plaintiffs would succeed in a class action suit against ATP.Furtermore the court added if the defendants did succed they would have to reimburse the plaintiffs for their cost of responding to the motion.Also ATP made a successful motion in March,2015 in U.S District court to dismiss the class action suit.Nevertheless the plaintiffs are scheduled to make an appeal to the U.S court of Appeals in August and September.In order to succeed the plaintiffs must introduce new and relevant facts to change the former decision.
A New Leaf
Atlantic Power has in the recent past traded higher than it's present price and had a higher dividend.But investors punished the stock price because of excess debt and reduced cash flows.Atlantic Power had to cut the dividend to keep it's capital program intact.Since 2013 it has made a number of astute investments such as acquiring the wind power assets.Now it has pared down some expensive debt and made it's debt profile look better.It probably still needs to sell one more asset that can produce another nice gain.A gain here might help to redeem one issue of their convertible debentures.A successful asset sale and an early redemption of debentures might help to raise their credit rating.All of these actions will help to gradually raise their cash flow again.
Sold the wind farm
Atlantic Power had 5 wind power plants in Idaho and Oklahoma.ATP sold them to Sun Edison and made a large capital gain.In fact, they made about $350 million from the sale and transferred $250 million of debt to the purchaser.So most of the proceeds paid off the $330 million early redemption of the senior unsecured notes.Atlantic Power states that it now has consolidated debt of $1.1 billion and this is a reduction of $800 million since the end of 2013.However Qtrade (a broker) shows more debt on their books than this.Probably ATP's data is more accurate here.Atlantic also shows that there was $250 million of debt on the wind assets that has been eliminated with the sale of the wind assets.
Atlantic adds that this is the early redemption of it's most expensive debt and over 9 months it has reduced total debt by almost $800 million.It, of course,will continue normal debt reduction by amortizing it's term loans and project debt.And now it has remaining corporate debt of about $305 million (in convertible debentures) which mature in 2017 and 2019.Atlantic is trying to lengthen their maturities.
Ontario Superior Court denies motion
On July 24, 2015 the Ontario Superior court of Justice issued a decision denying the plaintiff's motion for leave and certification of a class action suit against ATP.The Superior court concluded that there were no misrepresentations about disclosing material changes by the defendants and no possibility that the plaintiffs would succeed in a class action suit against ATP.Furtermore the court added if the defendants did succed they would have to reimburse the plaintiffs for their cost of responding to the motion.Also ATP made a successful motion in March,2015 in U.S District court to dismiss the class action suit.Nevertheless the plaintiffs are scheduled to make an appeal to the U.S court of Appeals in August and September.In order to succeed the plaintiffs must introduce new and relevant facts to change the former decision.
A New Leaf
Atlantic Power has in the recent past traded higher than it's present price and had a higher dividend.But investors punished the stock price because of excess debt and reduced cash flows.Atlantic Power had to cut the dividend to keep it's capital program intact.Since 2013 it has made a number of astute investments such as acquiring the wind power assets.Now it has pared down some expensive debt and made it's debt profile look better.It probably still needs to sell one more asset that can produce another nice gain.A gain here might help to redeem one issue of their convertible debentures.A successful asset sale and an early redemption of debentures might help to raise their credit rating.All of these actions will help to gradually raise their cash flow again.
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