Capital Power shows increased Adj. EBITDA and AFFO but high Price/Earnings ratio

 This blog and the author (above) often sees companies differently than other financial websites.One such company is Capital Power (CPX).A number of websites including several banks show the CPX price/earnings ratio as about 75.This is a misleading statistic.A better measure of the performance of Canadian utilities is price/adjusted EBITDA or price/adjusted funds from operations (AFFO).This would produce a present P/E ratio of about 13.
         Non-recurring Items
   Capital Power is in the unusual situation where it's generating capacity  and revenues show good increases while it's adjusted net earnings show losses in Q3.It has made a number of large acquisitions. And at the same time spent a lot of money converting it's coal-fired operations to dual-fuel operations.This has lead to large expenses and created net losses.On the other hand adjusted EBITDA has been revised upwards.One factor here is the increase in the Alberta power price from $47 per MWh to $59 per MWh.Another is the new revenues from their recent acquisitions including Arlington Valley,Goreway (in Brampton) and New Frontier Wind.As a result 2019 annual guidance for adjusted funds from operations (AFFO) has been raised upwards by 12% or from $485 to$535 million up to $535-$560 million.
                     

    Better Performance Data
 Both Scotiabank and TD bank show negative e.p.s. and a price/earnings ratio of about 75 times.This implies that Capital Power is an expensive stock.But using adjusted EBITDA per share the P/E ratio is about 15 times 2020levels..Technically the banks are correct but this an accounting anomaly and gives a very misleading picture of an aggressive,well-managed Canadian utility.This healthy increase in AFFO will allow CPX to make further accretive acquisitions and raise it's dividend by7% in 2020and 2021.Consequently look for CPX to inch upwards towards $38 before the next dividend increase in Q2.    https://www.capitalpower.com/