Algonquin Power continues Independent Venture outside of Liberty Utilities

Algonquin Power has shown good increases in earnings since 2015  but it's price has not reflected this growth.Consequently it's price/earnings ratio is around 8 times and much lower than the average P/E ratio for the industry.This although revenues and earnings  have shown good growth. One of the main reasons for this dichotomy is that many investors find that their earnings are locked in to the American regulatory system.Much of it is tied up in their largest American investment called Liberty Utilities which is a huge utility mostly in Kansas and Missouri.AQN has wrapped many of it's other American utilities (both regulated and non-regulated) into Liberty which I think has a listing on the NYSE.This blog has called for Algonquin to float a large secondary issue of Liberty shares and use the funds to make investments and move out from under the American regulatory umbrella.

Outside of the Umbrella           

To be fair AQN has made a number of moves outside of the umbrella recently.First it has acquired a number of  American wind farms which are not regulated;they have a power purchase agreement (PPA)But in comparison to Liberty Utility and the AQN regulated assets these properties make up only a small percentage.But Algonquin has made another move by raising money in a secondary AQN equity issue and investing it in a Spanish utility called Atlantica Yield.In fact, it owns about 35% of this quite large European utility.And in a rather strange event a regulator has allowed Liberty Utilities to pursue the development of up to 600 MW of wind power which usually is unregulated.

A Higher P/E ratio

AQN's adjusted EBITDA(earnings) has almost tripled since 2015.But their stock price increased by only 33% from $9 to $12 a share.This kind of growth  in earningsshould produce an above average P/E ratio and then a higher price.But AQN's P/E ratio has remained at about 8 times which is below the industry average of 15.As AQN moves out from under the regulated umbrella it's P/E ratio will rise perhaps to 11 or 12 in 2019.

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