Transalta has a good quarter and is in transition

       It is true that oil drilling has picked up  in Alberta as has the price of oil.Transalta says that" comparable EBITDA for the third quarter was the strongest third quarter result since 2013".Free cash flow was up $24 million over 2016.But these factors were not the main ones affecting TA.It is in transition in a couple of ways.Coal power generation is being gradually replaced.Consequently TA will get $215 million in 2018 from the Alberta government representing the net book value of it's assets. But coal will be it's largest earnings producer for the next 3 years.Also Transalta announced that it's South Hedland power station in Australia has begun commercial operation.EBITDA from it's Australian operation is now it's fourth biggest segment.And this blog expects more investment in Austaralia in the near future.
                  Structural Changes
  Transalta has used coal substantially to generate it's power in the past.In fact coal ( Canadian and U.S) is still the largest single source of earnings.Formal notice has been received to terminate their Sundance power purchase agreements.They will receive $215 million(the net book value of assets) to terminate Sundance in 2018.At the same time their Australia (South Hedland) power station has begun commercial operations.As a result their Class B shares will be converted to common shares.Consequently Transalta cancelled it's $350 million credit agreement with Transalta Renewables and reduced it's $1.5 billion credit facility to $1.0  billion.Transalta still owns between 70 to 80% of Transalta Renewables (RNW).This blog believes that TA is reasserting it's position in RNW again.In addition, their Kent Hills wind farm has completed a $260 million bond offering.Lastly Transalta expects to receive $335 million for the purchase of their Solomon  power station in Australia.
            Cash Flow
     Transalta's operations still generate a lot of profit and free cash flow.Adjusted EBITDA will be about $1025 million in 2017.While cash flow from operating activities will be about $750 million.This will leave free cash flow of about $325 million.And there will be another $215 million award from the Alberta government. But this money will be almost all used to update their  Canadian coal operations.Transalta is experiencing changes in all of their coal operations (including the shutdown of their Mississauga cogeneration plant).Cogeneration  and complete cycle power generation seems to be the way to go for their existing coal operations.Also look for more future projects in Australia.
                 Transalta Renewables
         Transalta has over the last 3 to 4 years downloaded most of it's renewable assets to RNW.In return it has retained 70 to 80% of RNW.There is little left to download now and so there will likely not be any more substantial downloading to RNW.Renewable energy products have not been as volatile as coal-fired and natural gas power.So this would not seem to be a good time to sell a small amount of their equity in RNW as their stock price is below the five year average price.Transalta may be content with updating some of their operations with their construction program expenditures and using free cash flow ($325 million) to start construction on a small wind farm project.        

The Transition

Transalta like most of north America is switching out of coal towards cleaner energy.The $215 million awarded by the Alberta government will help.Coal fired power will be switched to cogenerated plants and complete cycle plants.Transalta has one wind farm coming onstream called Kent Hills and may have another small one in 2018.Look for Transalta to announce another plant under construction in Australia.This is largely an unserved and less regulated market and offers good opportunities to TA.But Transalta will not move dramatically and this blog sees it in the $8.50 to $9.00 in 2018.

use Workathon for analysis of Cdn. utilities  use Workathon for analysis of Cdsn. utilities

Western Energy Services (WRG) gets it's chance to move up

    On November 9 a small oil drilling service reported it's results and they did not disappoint it's shareholders.On the other hand, the price did not barely budge.However a stock that was very little watched suddenly had more admirers (including this blog).It showed 40 to 50% increases in all performance measurements over the third quarter of 2016.This has been done with only a slight improvement in the price of oil.WRG's ace in the hole seems to be that it has a lot of new and modern technological equipment.Investors will be watching to see if it can repeat it's performance in the next quarter which should be a slower quarter traditionally with the cold weather.       

Financial Performance   

In the third quarter operating revenue increased by $20 million or by 67% to $51 million.Both drilling and production  services revenues were up.There was higher utilization of equipment in both segments.The increase in utilization was partly due to the quality of WRG equipment.In addition, two rigs were on long term contracts and a 4% increase in hourly rates.More importantly adjusted EBITDA increased from $.9  in 2016 to $6.9 million.This was combined with a slight increase in  administrative expenses of $.6 million to $5.4 million.And there was an increase in capital expenditures from $2.3 million in Q3 2016 to $6.3  million in 2017.

Finances 

Western Services got a new $215 million second lien from Aimco in return for 7 million common warrants at an exercise price of $1.25 per share.Also they made a private placement  of 9.1 million common shares to Aimco at a price of $1.25 for gross proceeds of $11.4 million.Lastly they completed a number of amendments to their Revolving Facility from $50 to $70 million.Still their property and equipment was valued at $720 million down from $663 million in 2016.

Year to Date

Performance for 9 months was even better than for Q3.Operating revenues increased 112% from $75 million to $160 million.Drilling revenue was up 142% and production services up 54%.Utilization of equipment was 36% compared to 14% in 2016.While adjusted EBITDA was $25.6 million up from $2.3 million in 2016.And administrative expenses was only up 12% over 2016.

What's Next? 

WRG is not expecting another big jump in oil prices in 2018.But this blog sees oil prices trending upwards in 2018.Both drilling and production services should be up over that seen in 2017. Adjusted EBITDA is likely to hit $35 million for the year.That will make e.p.s at about $.35 per share and the P/E ratio at only 3 to 4.This is a good buy with only a marginal increase in the price of oil.This blog suggests that some of these new earnings be  used to pay down the $215 million Aimco second lien.And if possible convert it to convertible debenture at a lower interest rate.Good results from the next quarter might send WRG to the $1.40 to $1.50 price level.But news on paying back part of the second lien will also help it get to $1.50

use Workathon for analysis of Cdn. resource stocks; get better rankings from Workathon

Pulse Data has a tremenduously good quarter and pays special dividend

   On Novemeber1 Pulse Data released it's third quarter report and shreholders  could hardly wait for it.They showed their data library sales were the second highest ever including a $30 million transaction in August.They aslo have $30 million cash on hand and a $30 million availability in their credit facility.
           Performance Compared to 2016     

   
  This year was hugely better than the third quarter in 2016.Revenue was $32 million compared to $6 million.While net earnings were $14 million compared to a $6 million loss and cash EBITDA was $30 million.Free cash flow was $24 million or $.43 per share compared to $4.3 million or $.08 per share.
      Nine Months Perfromance
            The third quarter was so good that it brought the 9 month performance up as well.Cash EBITDA was $33 million or $.60 per share compared to $6 million or $.11 per share in 2016.And it has purchased and cancelled 1.3 million shares.Free cash flow was $26 million or $.48 per share compared to $6 million or $.11 per share in 2016.This again is a dramatic improvement.While the number of wells drilled only went up from 7200 in 2016 to 7550 in 2017.
      But Pulse Data has made other ventures into the data area.It had a substantial position in Data Group Income fund which became Data Communications Management.It has also taken positions in Petrowest and Entrec both of which are in the oil services area.And since the price of oil has moved up in the last two quarters these new subsidiaries have become more profitable.This blog believes that this is perhaps the main reason that revenues are so far ahead of 2016.As the CEO says"We are positioned to grow the Company when accretive opportunities present themselves."And this blog expects that other accretive opportunities will present themselves.
            A Reasonable Joint Venture
         It is not likely that the results are this good just from a $30 million data library sale and a 5% increase in drilling activity.This blog believes that much of the extra increase in revenues was due to the new small subsidiaries acquired both on the data side and the oil services side.If true then the increases seen in the third quarter will be there in the fourth quarter.But this blog recommends another acquisition or a joint venture as PSD has a good amount of cash on hand as well as credit availability.The suggested target is Intrinsyc Technology which has good sales from it's Open -Q computing modules but desperately needs a new application.These computing modules could be used to improve service in a number of areas including field surveying.This would make a good joint venture for both companies.   

use Workathon for Cdn. technology solutions     use Workathon for technology consulting

Intrinsyc Technology drops software but increases sales

      On November 8 Intrinsyc Technology reported it's third quarter results.It showed that as the CEO says "the company is also garnering strong interest from recently introduced new products and has additional products in the pipeline".However Intrinsyc Technology showed only slight increases in all financial indicators.It also adds that it has earned decreased revenues from services and software.Revenues for the third quarter and for 9 months was up but only by 6% to $14 million.ITC tells shareholders that it's new products have produced new orders and new markets.But of course not all these orders will become firm revenues.
             Nine Month Tally
         Revenues were up 5% to $14 million from $13.2 million for 9 months of 2016.But net income was only $197,000 in comparison to $1,905,000 for 2016.Also the all important adjusted EBITDA fell from $2 million in 2016 to $1,500,000 in 2017.The key here is that Intrinsyc tells us that revenues from software and services fell from 2016.This blog believes (as do most investors) that the margin on both software and services is lower than on hardware.Rumour has it that ITC has met with several software companies and other equipment producers but has not made an acquisition.An astute acquisition might increase adjusted EBITDA as well as revenues.It is clear that ITC would have little trouble issuing equity for an  acquisition as it

 has only 21 million shares outstanding.
               The Fourth Quarter
            It is true that revenues have increased consistently for four quarters and adjusted EBITDA has remained quite buoyant.For these details see earlier Workathon blogs.But ITC will have to sharpen it's pencil and make some important changes- if not in the fourth quarter then soon.The share price has already dropped from the $2.00 -$2.25 area as investors saw the drop in sales and earnings coming. And this blog sees the share price staying in the same price range without either (a) a new product line (b) an acquisition or a joint venture to bring out new apps on it's open -Q computing modules.As this blog feels that a 6% increase in sales is not enough to get Intrinsyc Software back to
 the $2.25 area.             

            use Workathon for analysis of tech. companies ;  use Workathon for analysis of Cdn. tech companies

Fiera Capital increases Assets under Management by 25%

An earlier blog on Blogdaleupsome,also on Blogger, (September22,2017) discussed 3 up and coming financial companies.The three were AGF Finance,Fiera Capital and Guardian Capital.Of the three  Blogdaleupsome picked Fiera Capital as the best investment.The reasons are discussed in the September blog.Now Fiera has sweetened the pot by buying an asset management company called Natcan which was an arm of National Bank.Fiera had $125 billion assets under management and now it has $139 billion-a 9% jump.

The Natcan Deal

This is a deal taking 7 years to complete.The deal calls for 7 annual payments of about $8.5 million each year for a total of about $60 million.Fiera gives no indication as to whether it will be accretive to it's earnings (either immediately or after several years).A rule of thumb is that a good deal requires payment of less than 5 times EBITDA but investors have not been informed of the multiple paid.But business in Quebec is not strong relative to the past and this blog expects that it may have paid only 2 to 3 times EBITDA.For example, an investor buying Fiera shares pays 95 to 100 times EBITDA.If the multiple is this low then look for Natcan to be accretive to Fiera earnings in one to two years.This blog takes this as an excellent deal as there is a real paucity of  players available to acquire in the $25 to $100 million category.       

Fiera's Share Price

First it should be mentioned that Natcan was an exceptional find for Fiera.They only found out because their Chairman is or was on the National Bank board of directors.He had information that few others had.Secondly now Fiera has $130 billion in Assets under Management compared to $35 billion for AGF and $24 billion for Guardian Capital.Assets under management is the revenue base that each financial company charges fees and can earn revenues on.So Fiera should ideally earn 20% more revenue in 2018.And this is the building block needed to send Fiera Capital to $18 by year end.          https://www.brookfield.com/

Emera Utilities is in a Breakout Pattern

   Emera is a Canadian utility that is based in Nova Scotia.It

was growing slowly for the last 5 to 6 years.But in 2016 it acquired Teco Energy and it's assets grew from 8 billion which is substantial to $20 billion.It acquired Teco assets in Florida, New Mexico and the Carribean.This plus one or two other transactions has helped to transform Emera; now it is on a breakout pattern.2016 was only an average year as it was experiencing acquisition costs and               re- organization costs.Revenues dropped,EBIT dropped and so did e.p.s.But 2017 looks like it will have quite a bit better results in most financial categories.
       The First Half
   Adjusted EBITDAat $922 million and and earnings per share (e.p.s.) at $1.87 are almost as large as for the entire year of 2016.And the third quarter looks like it will be better than the second quarter.And if the third quarter is only 50% better than the below average second quarter at $.75 per share the total for 9 months will approximate $2.70 per share and exceed the 2016 annual total.Again an average fourth quarter will put e.p.s. for 2017 much larger than 2016.As said above that will mean that Emera results will have a break out year in 2017.
     The change has come from the Teco Energy acquisition which at first didn't look successful and now is bearing fruit.Emera has said after the Teco acquisition that it intends to raise the dividend by 8% every year until 2020.This seemed like a vacant promise at the time but now appears more likely.Partly as a result of this policy Credit- Suisse has given it a target price of $58 per share.This blog sees that once the 8% dividend increase is implemented in 2018 that Emera will continue to breakout towards $58 but not until then.
                         Signs of a Breakout
  First it must be remembered that 2016 was an good year so it will be difficult to generate large increases in 2017.So increases in revenues should not be on average as high as 25% better than 2016 as was experienced in the first quarter.The second quarter was below average but both the third and fourth quarter should return to the level seen in Q1.That will bring earnings up to between that seen in the first and in the second quarter.If this happens then this blog sees e.p.s. of $3.50 per share for 2017.This is in comparison to $1.87 for 2016.This should produce adjusted EBITDA of close to $1.5 billion for the year in comparison to $1.19 billion for 2016.In addition, Emera says that it will raise it's dividend by 8% each year until 2020.If Emera is able to increase it's dividend by 8% in Q2 2018 then Credit- Suisse will likely be right and the share price will be close to $55 in 2018 and $58 in 2019.     www.Credit-Suisse.com

WIN 20171007 16 04 26 Pro The Huronia Series of blogs