On September 4,2014 Algonquin Power announced a secondary offering of 16.86 million shares at $8.90 a share.There was also an overallotment of about 250,000 shares.This blog considers that $8.90 is a reasonable price for Algonguin Power to raise cash.The money was raised in 12 days-a good sign that demand is strong for Algonquin shares.This will increase the number of shares from 207 million to 224 million.Ordinarily this would dilute earnings and drive the price of shares down but Algonquin had a good first half and has new operations that will increase earnings for the second half.Consequently even with 17 million new shares , earnings per share will rise.Investors know this and have bid the price up to almost $9.00.It is likely to soon surpass the 52 week high of $9.15.
Another acquisition
Algonquin also acquired in Sepember another American utility in a kind of auction from Carlyle Infrastructure for US $327 million.The sale is conditional on approvals from American regulators.It is expected to close in the second half of 2015 and will not affect the balance sheet until then.Yahoo Finance points out that this is the eighth American utility acquired by Algonquin since 2010.It has picked up utilities in Georgia, Arizona and Arkansas along with these new Carlyle utilities in California and Montana.Most have gotten recent rate increases that have increased revenues and earnings.Earnings went from $.16 per share in the first half of 2013 up to $.22 in 2014.This with new earnings coming onstream from Cornwall and Bakersfield, California in the second half of 2014 .An earlier blog predicted earnings of $.47 to $.50 per share for 2014.This still seems reasonable with the new shares as net earnings seem on track to hit $100 to $120 million for the year; they reported $51 million for the first half and new earnings about to be delivered.The question is whether the new properties can deliver as the existing properties did in the first half.And the bigger question is can they keep getting generous rate increases from American regulators like they did in early 2014.
Forecast for 2015
This blog sees an increase in earnings for 2014 to $.47 to $.50 per share from $.34;this is an increase of more than 40% and should send the P/E ratio down to 21 or 22 from the present 26.This blog sees little resistance at it's 52 week high of $9.15 and it may head towards $10.00 per share by late November.But 2015 may see small or no rate increases from American regulated utilities and earnings growth will stall.Algonquin has a nice portfolio of assets but more future purchases must come from northern properties.It appears that Algonquin is better at buying distressed properties than building them.
Saturday, 20 September 2014
Wednesday, 17 September 2014
A Reit in the north
Lanesboro Reit posted their second quarter results on August 18.They are not widely followed because they do not have a huge amount of assets and much of their assets are in the Canadian north.They trade at about $1.15 per share now but have traded at $1.50 per share recently;they sold some non-core assets in 2013 and made a good gain.This quarter they made a net loss of $.21 million before extraordinary items while net operating income decreased by $.16 million compared to Q2 2013.Their occupancy rates are rising but still below industry standards.But they did make some gains on the financing side.In particular, they received a $9 million repayment of two mortgage loans on Clarington Senior's residence in central Ontario.
Financial details
The main item here is the repayment of two mortgage loans for $9 million.They also increased a mortgage on one property and got proceeds of $1.6 million.Also they refinanced a $16 million loan that was subject to a covenant breach and got a better interest rate.They have no loans that are in breach of loan covenants and this brings a better interest rate on all mortgage loans.They also got an extension on their series G Debentures.Lastly they expect their warrants will be exercised in 2015 and will use proceeds to pay off more debt.
Conclusion
It has many properties in the Fort Mcmurray tar sands area.Incomes are not yet stable here and Lanesboro has suffered low occupancy rates in the past.Occupancy rates are up but rental rates have fallen somewhat.They need to raise rental rates and occupancy and the increase in the price of heavy oil should help by stabilizing incomes.It did have a small loss this quarter but the financing gains help to offset.The second half should be slightly better but they need to diversify their portfolio perhaps into Edmonton or Fort St.John in British Columbia.Still they are more solid than many small Reits as their shareholder equity is about $120 million and total assets of about $475 million.The price should stay in a range this half between $1.00 to $1.25 per share.However they would make an excellent takeover candidate for a bigger operator like Holloway Lodging or Interrent Reit if it can be obtained at the right price.With their financing situation improved Lanesboro will be a little more expensive this quarter.
Financial details
The main item here is the repayment of two mortgage loans for $9 million.They also increased a mortgage on one property and got proceeds of $1.6 million.Also they refinanced a $16 million loan that was subject to a covenant breach and got a better interest rate.They have no loans that are in breach of loan covenants and this brings a better interest rate on all mortgage loans.They also got an extension on their series G Debentures.Lastly they expect their warrants will be exercised in 2015 and will use proceeds to pay off more debt.
Conclusion
It has many properties in the Fort Mcmurray tar sands area.Incomes are not yet stable here and Lanesboro has suffered low occupancy rates in the past.Occupancy rates are up but rental rates have fallen somewhat.They need to raise rental rates and occupancy and the increase in the price of heavy oil should help by stabilizing incomes.It did have a small loss this quarter but the financing gains help to offset.The second half should be slightly better but they need to diversify their portfolio perhaps into Edmonton or Fort St.John in British Columbia.Still they are more solid than many small Reits as their shareholder equity is about $120 million and total assets of about $475 million.The price should stay in a range this half between $1.00 to $1.25 per share.However they would make an excellent takeover candidate for a bigger operator like Holloway Lodging or Interrent Reit if it can be obtained at the right price.With their financing situation improved Lanesboro will be a little more expensive this quarter.
Tuesday, 26 August 2014
Northland Power changes guidance
Northland Power released it's second quarter results recently and it experienced another solid quarter.Northland is a little different than many traditional power generators.It has quite a few Canadian operations including solar and wind based generators but it also has a new wind farm in the North Sea.It is a massive operation and took massive financing.It has completed it's financing now and has started construction.The completion date is expected to be 2017.
The second quarter
Sales were up, from $124 million in Q2 2013 to $170 million in 2014.Free cash flow was up 43 % over last year while it was up by 87% in Q1 2014 over the same quarter in 2013.However Northland had significant non-cash charges and showed a net loss of $61 million compared to net income of $75 million in Q2 2013.Because of heavy capital write-offs and interest charges a better measure of performance for most utilities(including Northland) is adjusted EBITDA.For example, Northland(NPI) had a net loss for the first half of 2014 of $46 million in comparison to a net income of $100 million for the first half of 2013.But EBITDA which allows for financing and foreign exchange gains and losses has been raised by NPI from $305 million to $350 TO $360 million for 2014.This presumably does cover preliminary financing charges for their huge wind farm called Gemini.In addition,NPI raised guidance for 2015 up to $380 to $400 million.
The impact of Gemini
The total capital cost of Gemini will be around EUR$2.8 billion.It took awhile to arrange financing but it is now completed.Financing charges will affect it's earnings and earnings per share but these are non-cash charges and most will not affect cash flow.However for large capital projects like Gemini many investors will use EBITDA as a guide.The only problem is that it can put a strain on the payout ratio which will remain high until Gemini is finished.NPI says that their dividend is safe and this blog believes that it is.After all they just raised their guidance for both 2014 and 2015.
The second quarter
Sales were up, from $124 million in Q2 2013 to $170 million in 2014.Free cash flow was up 43 % over last year while it was up by 87% in Q1 2014 over the same quarter in 2013.However Northland had significant non-cash charges and showed a net loss of $61 million compared to net income of $75 million in Q2 2013.Because of heavy capital write-offs and interest charges a better measure of performance for most utilities(including Northland) is adjusted EBITDA.For example, Northland(NPI) had a net loss for the first half of 2014 of $46 million in comparison to a net income of $100 million for the first half of 2013.But EBITDA which allows for financing and foreign exchange gains and losses has been raised by NPI from $305 million to $350 TO $360 million for 2014.This presumably does cover preliminary financing charges for their huge wind farm called Gemini.In addition,NPI raised guidance for 2015 up to $380 to $400 million.
The impact of Gemini
The total capital cost of Gemini will be around EUR$2.8 billion.It took awhile to arrange financing but it is now completed.Financing charges will affect it's earnings and earnings per share but these are non-cash charges and most will not affect cash flow.However for large capital projects like Gemini many investors will use EBITDA as a guide.The only problem is that it can put a strain on the payout ratio which will remain high until Gemini is finished.NPI says that their dividend is safe and this blog believes that it is.After all they just raised their guidance for both 2014 and 2015.
Tuesday, 12 August 2014
Pengrowth Energy- a successful driller
Pengrowth Energy released it's second quarter results last week and it was adequate but not great.Pengrowth is working hard to develop it's heavy oil property called Lindberg for the fourth quarter.So Pengrowth inked an agreement with Husky Oil for delivery of heavy oil.This will assure cash flow for it's new oil and should be seen as a good move although the cost is unknown.It also shows an increase in reserves at Lindberg which will extend the life of the Lindberg pool.
The Cardium
Pengrowth has spent a good portion of their capital expenditures on the Cardium area of Alberta.Pengrowth(PGF) has developed a few fields here and had an excellent drilling record.They report a 100 % drilling rate.But this is likely all horizontal drilling and vertical drilling in a well delineated pool or pools.They have not extended their field with any or not many exploratory drilling.There may be accessible oil that has not been explored which could easily increase their production if true.This will be important in the next quarter if production does not rise. As it should not be that expensive and PGF has a good cash balance on hand.
The other areas
PGF has significant acreage in the Mannville area of Alberta and in the Swan Hills area.This blog( in an earlier blog) advocated PGF to take a position in Perpetual Energy which has properties near it's properties and not a huge market cap.PGF missed this opportunity and Perpetual got another partner even though PGF needed this increase in production.Perpetual is also developing it's Mannville sands property and would make a good partner for PGF.PGF could get a JV agreement with Perpetual to develop it's Mannville property and pay some of it's cash on hand.
PGF also has significant acreage in the Swan Hills area which is primarily a natural gas area.Perpetual might take a farm-in agreement here too . Or PGF could talk to Lightstream Resources which has just developed a battery that will eventually produce up to 3500 barrels of oil per day.Lightstream needs cash and would make an excellent partner.PGF expects to spend only about $220 million on capital expenses for the rest of the year and this will just not "cut it".They need new production in the third quarter before the well awaited Lindberg comes onstream.However PGF still produces almost double the barrels per day of Lightstream Resources and ten times juniors like Argent Energy or BNK Petroleum;so it seems to be fairly valued.
The Cardium
Pengrowth has spent a good portion of their capital expenditures on the Cardium area of Alberta.Pengrowth(PGF) has developed a few fields here and had an excellent drilling record.They report a 100 % drilling rate.But this is likely all horizontal drilling and vertical drilling in a well delineated pool or pools.They have not extended their field with any or not many exploratory drilling.There may be accessible oil that has not been explored which could easily increase their production if true.This will be important in the next quarter if production does not rise. As it should not be that expensive and PGF has a good cash balance on hand.
The other areas
PGF has significant acreage in the Mannville area of Alberta and in the Swan Hills area.This blog( in an earlier blog) advocated PGF to take a position in Perpetual Energy which has properties near it's properties and not a huge market cap.PGF missed this opportunity and Perpetual got another partner even though PGF needed this increase in production.Perpetual is also developing it's Mannville sands property and would make a good partner for PGF.PGF could get a JV agreement with Perpetual to develop it's Mannville property and pay some of it's cash on hand.
PGF also has significant acreage in the Swan Hills area which is primarily a natural gas area.Perpetual might take a farm-in agreement here too . Or PGF could talk to Lightstream Resources which has just developed a battery that will eventually produce up to 3500 barrels of oil per day.Lightstream needs cash and would make an excellent partner.PGF expects to spend only about $220 million on capital expenses for the rest of the year and this will just not "cut it".They need new production in the third quarter before the well awaited Lindberg comes onstream.However PGF still produces almost double the barrels per day of Lightstream Resources and ten times juniors like Argent Energy or BNK Petroleum;so it seems to be fairly valued.
Wednesday, 21 May 2014
Huronia Consulting(part 3)
Huronia Consulting is a name I have given to a series of blogs related to improving things in Midland, Ontario.Firstly I have suggested that the mayor needs to talk to and get funding form provincial and federal politicians (not necessarily the minister) to modernize the three or four factories on highway 12.This will take a concerted effort by the mayor and town council.Secondly I point out that Midland is the centre of a county(Simcoe County) that has grown faster than the province since the 2006 census.Primarily Tiny and Tay township have grown in population and have no real centre ,other than Midland,to get many of their weekly purchases.Also Midland has special attractions that most of the surrounding towns do not have.For example,Mcdonald's Restaurant, Canadian Tire,many restaurants,and a large Shopper's Drug Mart plus an art centre and a hospital.
A breakdown of the Townships
Once you look at the breakdown of the population in the three townships around Midland you can see just how potentially important they are to Midland's future.Including Springwarter township the three townships have a population(2011 census) of 39,200.The main two population centres(other than Midland) are Penetanguishene and Elmvale.Neither has the special attractions that Midland does but Penetanguishene must be taken as a competitor for business from the townships.Elmvale less so.In fact, many people from Elmvale may shop at the Midland Canadian Tire or go to it's art centre.So it can easily be seen that competitive prices and customer service can bring more dollars spent into Midland over Penetanguishene and Elmvale.
The new Structure
There has been changes going on in Midland over the past year.Quite a few stores in the Mountainview mall have closed down and business is not booming in the remaining stores perhaps with the exception of the Food Basics store.It has competitive prices and always a special or two.Service in all the mall stores is questionable.The future is not certain unless the remaining stores start to compete on price and become more customer-friendly.A couple of stores have closed also downtown but the art centre may have brought a little more traffic downtown.There is steady traffic downtown because the banks are downtown.It is expected that new stores may gradually take the place of the ones closed.But I think the area that might get new stores is on the road between Midland and Penetanguishene.The hospital seems to be expanding and some new stores have already opened such as the Subway store.There is more traffic coming out here as people increasingly come to Swiss Chalet and the Beer store.New outlets may spring up along the highway.The Super store and the Canadian Tire are always busy and bring traffic.Here is where we may get new stores.
A breakdown of the Townships
Once you look at the breakdown of the population in the three townships around Midland you can see just how potentially important they are to Midland's future.Including Springwarter township the three townships have a population(2011 census) of 39,200.The main two population centres(other than Midland) are Penetanguishene and Elmvale.Neither has the special attractions that Midland does but Penetanguishene must be taken as a competitor for business from the townships.Elmvale less so.In fact, many people from Elmvale may shop at the Midland Canadian Tire or go to it's art centre.So it can easily be seen that competitive prices and customer service can bring more dollars spent into Midland over Penetanguishene and Elmvale.
The new Structure
There has been changes going on in Midland over the past year.Quite a few stores in the Mountainview mall have closed down and business is not booming in the remaining stores perhaps with the exception of the Food Basics store.It has competitive prices and always a special or two.Service in all the mall stores is questionable.The future is not certain unless the remaining stores start to compete on price and become more customer-friendly.A couple of stores have closed also downtown but the art centre may have brought a little more traffic downtown.There is steady traffic downtown because the banks are downtown.It is expected that new stores may gradually take the place of the ones closed.But I think the area that might get new stores is on the road between Midland and Penetanguishene.The hospital seems to be expanding and some new stores have already opened such as the Subway store.There is more traffic coming out here as people increasingly come to Swiss Chalet and the Beer store.New outlets may spring up along the highway.The Super store and the Canadian Tire are always busy and bring traffic.Here is where we may get new stores.
Sunday, 4 May 2014
Huronia Consulting(part 2)
Simcoe County is in Central Ontario and it has lagged behind the province in industrial growth and in population.But according to Statistics Canada from 2006 to 2011 Simcoe County has had population growth exceeding the provincial average.Simcoe County had an average growth of about 1.2% versus a little less than 1% for the province.Wasaga Beach has grown also but it has not had much industrial deelopment.Springwater Twp.,Tiny Twp.,and Tay Twp. all have grown at about the provincial average.Here is where Midland gets a substantial amount of it's income from!Midland is a centre for the area.It has services that the surrounding small towns do not have.This includes to some extent Wasaga Beach and certainly includes Penetanguishene.
Midland Services
Midland has lots of services not in the surrounding towns.Their main street is considerably more fashionable than that of Balm Beach or Waubashene.Midland has a hospital matched only by Collingwood in this area.The Mcdonald's restaurant brings people into Midland that don't want to go to Barrie and don't like the one in Elmvale nor the one in Wyevale(there is none).Grocery stores in Midland offer much more variety than the ones in Perkinsfield.So services do bring people into Midland but will it continue to? Midland must compete on the basis of customer friendliness and on price. Customers may come in from Tay township and Tiny township but will they buy a little or a lot?It depends on the friendly staff and the prices they must pay.However the difference between selling $60,000 in sales or $100,000 per day may depend on just that.The area is growing and the townships are growing almost as fast so Midland will continue to service the area for people that don't want to drive to Barrie.The question is how successful will local businesses be?
Midland Services
Midland has lots of services not in the surrounding towns.Their main street is considerably more fashionable than that of Balm Beach or Waubashene.Midland has a hospital matched only by Collingwood in this area.The Mcdonald's restaurant brings people into Midland that don't want to go to Barrie and don't like the one in Elmvale nor the one in Wyevale(there is none).Grocery stores in Midland offer much more variety than the ones in Perkinsfield.So services do bring people into Midland but will it continue to? Midland must compete on the basis of customer friendliness and on price. Customers may come in from Tay township and Tiny township but will they buy a little or a lot?It depends on the friendly staff and the prices they must pay.However the difference between selling $60,000 in sales or $100,000 per day may depend on just that.The area is growing and the townships are growing almost as fast so Midland will continue to service the area for people that don't want to drive to Barrie.The question is how successful will local businesses be?
Monday, 31 March 2014
Letters on my shingle
I have let readers of my blog know that I have hung out my shingle and am looking for consulting business.Some might reply to Workathon and some might send me an email.Google Analytics shows that Workathon gets a lot of readers.So far there have been no contacts.I have explained in previous blogs that I have my Master's degree in Economics plus one course short of my M.B.A. and four or five courses short of my Chartered Management Accounting degree.But these are simply letters on my shingle.This does not guarantee practical advice to any" wannabe" customers.They want practical experience.
So I can add that I have worked as a management consultant in the federal government and as an economist in the federal government.However potential customers in the Huronia region know that industry in this region is quite different than working in the federal government. And they are right.
The real world
After I left the federal government(as a civil servant) I had to get licences to work in the industrial town of Cambridge (8 miles from Kitchener).The first licence I got was a real estate licence and I worked for two years with a company called Olsen Real Estate.My first year I was in the middle of the pack;half sold more than me and half sold less.But the next year was a recession and lots of people left real estate and I was one of them.Still I had 10 to 15 listings and 15 to 20 sales.I had partly learned the trade.Next I turned to stocks and bonds and mutual funds. I studied for three months and took my exam and passed the Canadian Securities Course(C.S.C).I mostly sold mutual funds as people wanted to buy stocks and bonds from larger companies.But the mutual funds I sold did very well.Lastly I decided to get my life insurance and accident and sickness licence.I passed it right away.At first I sold for Mutual Life acquired by Clarica and then Sun Life.But I was much more successful selling it with my own company as a self employed agent.I found a number of small companies that competed on lower prices and I did sell quite a bit of insurance.In particular these small companies offered health insurance that I sold to seniors and people who travelled to the south for winter.This was quite successful for awhile.It is primarily because of this experience that I think I can offer acceptable advice to small companies in this region. But it is nice to have a few letters on my shingle.
So I can add that I have worked as a management consultant in the federal government and as an economist in the federal government.However potential customers in the Huronia region know that industry in this region is quite different than working in the federal government. And they are right.
The real world
After I left the federal government(as a civil servant) I had to get licences to work in the industrial town of Cambridge (8 miles from Kitchener).The first licence I got was a real estate licence and I worked for two years with a company called Olsen Real Estate.My first year I was in the middle of the pack;half sold more than me and half sold less.But the next year was a recession and lots of people left real estate and I was one of them.Still I had 10 to 15 listings and 15 to 20 sales.I had partly learned the trade.Next I turned to stocks and bonds and mutual funds. I studied for three months and took my exam and passed the Canadian Securities Course(C.S.C).I mostly sold mutual funds as people wanted to buy stocks and bonds from larger companies.But the mutual funds I sold did very well.Lastly I decided to get my life insurance and accident and sickness licence.I passed it right away.At first I sold for Mutual Life acquired by Clarica and then Sun Life.But I was much more successful selling it with my own company as a self employed agent.I found a number of small companies that competed on lower prices and I did sell quite a bit of insurance.In particular these small companies offered health insurance that I sold to seniors and people who travelled to the south for winter.This was quite successful for awhile.It is primarily because of this experience that I think I can offer acceptable advice to small companies in this region. But it is nice to have a few letters on my shingle.
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