Emera consolidates it's Teco acquisition

In 2016 Emera acquired a quite large American utility called Teco;it had divisions in Florida, New Mexico.Maine and the Carribbean.It had total assets of about $8 to $10 billion.And now Emera which is headquartered in Nova Scotia has total assets of about $29 billion.And late in 2017 it invested about $1 billion in it's Maritime Link connecting Newfoundland and Maine to it's grid.But these large projects take a bit of time to properly digest .Consequently 2017 showed inconsistent results but 2018 is off to a better start.

The first quarter 2018

As the various divisions of Teco become integrated  within the Emera system the earnings are starting to improve.Although the net income was only $271 million compared to $312 million in Q1 2016.More importantly adjusted net income improved to $202 million from $152 million in 2017.That is because accounting adjustments are being minimized.Consequently adjusted earnings per common share were $.87 compared to $.72 per share in 2017 for a 22% increase.With the improved system and earnings this blog sees adjusted earnings per common share on track to hit $3.50 to $3.90 per common share for all of 2018.Which end of the earnings'range will depend on the profitability of their new Maritime Link mentioned above.For example, the Maritime Link earned $15 million in Q1. and this number is expected to increase in Q2.

Divisional Results

Emera now has 5 main divisions;(1)Florida and New Mexico,(2)Nova Scotia Power,(3) Maine,(4)New England and (5) Caribbean.The largest increase was recorded by the Florida-New Mexico division and New England but there was a substantial contribution from Nova Scotia Power.And as mentioned previously a small contribution from the Maritime Link.Future gains are expected from Florida-New Mexico,Maine and the Maritime Link.This should bring earnings per common share to the range of $4.75 to $5.00 and adjusted earnings per share to the $3.50 to $3.90 range.

Annual Results

Annual results have been inconsistent since 2015.The general trend is that net income has risen over this period but 2016 and 2017 have not moved with trend.In addition, some quarters have shown negative results while others have been above trend.Part of the reason is that Teco was so big;it was close to 50% of the value of Nova Scotia Power.Secondly it was so spread out;part in New England and part in New Mexico and another part in Florida.It takes time to manage such a well spread out giant but this blog suspects that the amount of investment required to make Teco run smoothly was more than originally counted on.On the other hand,adjusted EBITDA has moved up considerably since 2015.And now e.p.s. has started to move towards the upward trend.The earnings projection of $3.50 to $3.90 per share is based on no extraordinary items and Emera has minimized these items gradually.At $3.50 per share this would put their P/E ratio at a reasonable 12 times earnings.

The 2018 Price

With the Teco acquisition completed the CEO stated that there would be a dividend increase every year until 2019(see Blogdaleupsome-Blogger.com dated 24/08/2017)Emera states that "operating cash flow increased $96 million,or 28% to $444 million in Q1 2018."This leaves lots of room for a 7% increase.There is little doubt that Emera has improved their operations so a corresponding price increase to the $48 range should not be much of a surprise.But it will be a slow rise.       https://www.credit-suisse.com/ca/en.html  ;https://www.brookfield.com/

Laurentian Bank is on the Comeback Trail

       Laurentian Bank was trading around $60 per share just 5 to 6 months ago.It had a relatively small mortgage debacle and the stock fell at first to the $50 level and then fell again to the present $45 level.CMHC had to buy back quite a few mortgages(probably at a discount) and then CMHC sold about $115 million mortgages back to Laurentian (probably at a deeper discount).An earlier blog on Workathon estimated that the total cost at perhaps $.10 to $.20 per share.However now it is clear that the loss of confidence in Laurentian Bank management is at the root of the matter.As Laurentian Bank just released it's second quarter report on June1 which was a good one and the stock fell another $1 per share.
                But it was a Good Second Quarter
   Total  revenues increased by $21 million to $260 million from $238 million.And net income was $60 million or $1.34 per share compared to $1.19 per share for Q2 2017.And diluted earnings per share were $1.47 up from $1.39.And most importantly the quarterly dividend was raised $.01 to $.64 per share.In addition, they raised their Tier1 capital ratio went from 8.1 to 8.6% showing a higher degree of safety for shareholders.
    LB made other changes as well.They sold their agriculture loan portfolio for a net gain of $5 million.Their loans to business customers was up almost 20% and they acquired Northpoint Commercial Finance (NCF)  and CIT Canada.This brings their total assets to $48 billion and AUM(assets under management) to $31 billion.                                     

More Work to Do

Investors have seen the quarterly report which came out on June 1 and have not bid the stock up.It is not likely that they were unimpressed with LB performance but perhaps not sure if there will be more underwriting problems on their mortgages.In effect, their underwriters have underestimated the risk of default.This blog suggests that investors need more time to see if these problems have been remedied and if their new acquisitions will be accretive also.However adjusted net income for the six months period was up 23% and adjusted net income per share up 5%.So it is likely that the stock price will move towards $48 by the third quarter report.Hopefully the underwriting problems will all be resolved by then.          https://accweb.mouv.desjardins.com/identifiantunique/identification?domaineVirtuel=desjardins&langueCible=en;https://www.brookfield.com/

Northland Power climbs the Ladder

The caption above shows men at work on a rig;there is considerable risk in drilling for oil these days.Northland Power took a larger risk in  constructing two large offshore wind farms in the world's strongest winds in the North Sea.But now they are both built (600 MW and 332MW) and fully commissioned revenues are coming in.Their recently released first quarter report shows that they have been very successful  here and they are awaiting future results from one more wind farm with a constructed 252 MW of power capacity.However the stock price has not yet kept pace with the new construction and the new revenues.It too must climb up the ladder.

First Quarter Highlights

Sales increased 34% or $122 million to $486 millionand adjusted EBITDA increased 47% or $92 million to $290 million.This was even partially offset by the expiry of the Kingston power ourchase agreement (PPA).There will be no large increases in power output until 2019 when their other wind farm has been fully constructed.But NPI will get pre-completion revenues from their new project in 2018.They have also executed a 20year power contract with Taiwan for 60% ownership in 300 MW starting in 2024.So Northland continues to line up large foreign power contracts.Lastly the blog 4-C Offshore says that in 2014 when they acquired Nordsee 1 they also acquired the rights (along with the German firm RGE) for Nordsee 2 and 3which will be beside Nordsee1.The combined power capacity here will be 760 MW.However no final word has come on these two wind farms.                       

Climbing the Ladder

Northland has built 1092MW of capacity in the last 2 and a half years.About 750MW of which they now own.Annual revenues have grown from$760 million in 2014 to $1376 million in 2017 while over the same period adjusted EBITDA has grown from$349 million to $980 million.It's guidance for 2018 is for adjusted EBITDA of $900 to $950 million and free cash flow per share of $1.70 to $2.00 per share.But the stock price has not kept pace;in short, it has not climbed the ladder.It has not done what the men in the caption above have done;they moved across the river in stages.Based on the revenues and earnings ladder Northland Power should have climbed up to the $28 per share level.

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AGF Finance is shaping up

     AGF Finance is one of the three new finance companies that I looked at in a blog on August15,2017.It has made some improvements as has the other two,namely,Guardian Capital and Fiera Capital.Both the price of Fiera Capital and AGF are down since August ;Fiera is down about 15% and AGF about 20% and Guardian Capital is flat.Fiera is the larger company with $128 billion of assets under management (AUM) while AGF has AUM of $37 billion.Guardian is the smallest.But AGF just had a good first quarter as adjusted EBITDA,net income and e.p.s. grew at an above average rate.And all 3 have been helped by the interest rate increases.But what will happen for AGF for the rest of the year?Well AGF has made some improvements worth describing.          

Annual Highlights

61% of their AUM performed above the median rate for the last 3 years.Adjusted e.p.s. increased 27% compared to 2016 .Also AGF is expecting a $16 million cash refund arising from a transfer pricing case.This should raise adjusted EBITDA to about $40 million for Q2 or about $.45 per share.AGF also started two new ETFs on the NEO exchange.And lastly AGF announced fee reductions across several of their funds. Consequently AGF recorded $20 million of sales(net of redemptions) and $58 million expected for March sales.                        

Who will Outperform in 2018?

Guardian Capital is smaller and has smaller price movements.However it might move up to the $26 -$27 price range as it has a good steady cash flow.Fiera has the best yield at 6.9% compared to AGF at 4.9% and Guardian at 2.1%.And Fiera is adding to AUM faster but it's income trails.So it is Fiera that has the highest P/E ratio at 12.This blog looks for  annual e.p.s. of $1.05 to $1.30 for AGF(especially with the $16 million cash refund) and at a multiple of 8.5 this gives it an expected price of $8.50 to $9.00.This makes it the likely winner with a gain of almost 50% and would likely beat Fiera which may not hit $15 in 2018.

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Tecsys shows flat third quarter results

    On March1, Tecsys reported it's third quarter results and earnings were good but revenues were flat.Third quarter revenues were $17.2 million compared to $17.4 million for 2016.On the other hand, third quarter adjusted EBITDA was $1.3 million compared to $1.9 million in 2016 but there was a $.4 million foreign exchange loss.But for 9 months adjusted EBITDA was up 10% and e.p.s up 70% from 2016.While adjusted EBITDA for 2017 was up 40% and e.p.s was up 40% from 2016.
              A Transition for Tecsys                     

           Tecsys provides supply chain and warehouse management but it also operates three or four junior construction companies.Two of them are in western Canada.This blog believes that it has a small position in one or two junior construction companies around north Toronto.Revenues in the oil patch might  have been volatile for the last two or three years.So the supply chain management business has acted to stabilize revenues.This blog has recommended in the pst to focus on the construction business and sell off parts of the supply chain management business.
           Financially Speaking
           Tecsys is a small company with 13 million shares and a  market capitalization of about $210 million.Long term debt is down about 40% from 2017 while share capital is up about 7 to 8%.It now has 13 million shares.There has been a reduction in retained earnings of about $500,000 over 2016 and chiefly a gain in equity to the owners of $11 million.The reason debt has fallen is principally because they issued 767,000 shares and raised $11 million;some  of it has been used to repay debt. However this blog finds their capital structure restrictive and it limits their growth.
                              

Future Prospects

Tecsys has come a long way in the last 5 years.Revenues and net income and adjusted EBITDA have steadily moved up;it is a growth stock.And this growth has commanded a fairly good P/E ratio.The price/earnings ratio for 2017 will be above 30 as e.p.s will be about $.45 to $.50.This is with their present 13 million shares.And this blog has called for an increase in equity which will increase revenues and earnings but will it increase e.p.s?On the other hand it's debt has fallen considerably.Tecsys must find a way to increase it's equity along with a small increase in debt.It has small but not controlling positions in several construction companies and a substantial interest in a supply chain management business.The increase in capital must be used  to increase one or both businesses.  

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Aimia sells non-core assets to bolster balance sheet

             This is another of those slightly unusual situatuons that are best covered in Workathon instead of Blogdaleupsome.Aimia is in a bit of a credit crunch and so did what most other companies would do.They sold off (and may still be selling off) some non-core assets.In this case they sold their Nectar business with joint owner Sainsbury's.Sainsbury's sells grocery, financial,energy, clothing and general merchandise.And Nectar is their largest issuance and redemption partner.Nectar and their research business plus 50% of their stake in Sainsbury's was sold for $105 million. There was no mention of the net proceeds from the transaction.    

               Other non-core Assets
        Aimia is not completely cornered yet as it has a few cards in it's hand to play.It's financial statements show $100 million of investments in unconsolidated assets and a further $400 million of other investments(including government bonds).Down the road these may be disposed of for working capital or repayment of debt.Their latest press release shows $208 million of debt remaining on their balance sheet.If push comes to shove some of these assets may be sold off but the profit recorded will vary with the strength of Aimia's hand.
             A Weird Press Release
           This press release talks about a$174 million transfer of cash and a working capital settlement.If their Nectar loyalty business was sold there would be no cash involved they would merely be maintaining a reserve fund for redemptions.If there was a  cash transfer then maybe Aimia has a small position in Sainsbury's which is a  $5.5 billion company.But this is unlikely in Aimia's present position.More than likely this is the kind of press release that one puts out on April1.Selling off non-core assets is just what Aimia should be doing in order to bolster it's position before June 2020.As Aimia still does not have an amended agreement with Air Canada as this blog has suggested.However if there is any substance to this  press release it will all be detailed in their upcoming first quarter report.
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