Algonquin Power completes three big new projects

       On November10 Algonquin Power released it's third quarter results.It shows substantial increases for revenues and even greater increases in net income and adjusted EBITDA.Revenues increased by more than 15% to $221 million while adjusted net earnings increased by almost 60% and adjusted EBITDA increased by 30% to $91 million.More importantly adjusted funds from operations increased by about 15%  to $61 million.
    Nine month Operations
 Revenues grew at a slower pace for the 9 month period;revenues were ahead by only 3% to $786 million for the third quarter.While adjusted net earnings were ahead by about 40% for the period.The more important adjusted EBITDA increased by about 28% over the third quarter of 2016.While adjusted funds from operations  increased by about 20%.This shows that the growth in  revenues have  tailed off but existing projects have become more profitable.Algonquin management attributes the increased earnings to the newly acquired Park Water System.
      New Projects
    Algonquin Power management has correctly realized that it needs to have new projects to steepen it's growth path for earnings.So in late 2015 they acquired the Park Water System and in 2016 they built the O'dell wind farm and now they are trying to complete the requirements for the acquisition of the Empire Electric Company.All of these are large projects and all are starting to influence earnings.AQN attributes the increase in earnings in this quarter to the Park Water System and O'dell will be impacting earnings in the fourth quarter.Empire will likely be coming onstream for revenues and earnings in 2017.These are all American systems and two of the three are regulated systems with in most cases  steady growth in earnings.Most Canadians (including this author) were sceptical of  the expected treatment by American regulators.But with a few exceptions the regulators have been very business-like. In fact, AQN's free cash flow has been robust enough for it to declare an increase in their 2016 dividend;it now stands at $.1435 per quarter.And with the expected increase in adjusted EBITDA  in 2017 this blog expects a further increase in the dividend in 2017.                        

                       The Fourth Quarter
          Increases in revenues have started to flatten for Algonquin although they have shown good ,steady increases in earnings.Faced with this situation Algonquin realizes that they need big projects and went out and got them.In the 2016-2017 period they picked up three large producers of earnings;two are regulated and one has a long term power agreement.AQN has shown good increase in earnings in the past and needed not only the same increase in earnings but a steepening curve.And they have done so.
       Regulators have their risks too
  In 2015 Algonquin Power announced that it was acquiring the Park Water System in the western USA and they were building the O'dell wind farm in Minnesota and trying to acquire the Empire Electric Company in Kansas and Missouri.At the time the price of AQN  shares  was about $10.00 to $10.50 a share.The yield was about 4%The regulators did slow things down but the Park Water System went ahead and soon the O'dell wind farm was built.The share price moved ahead to a high of $12.50 but it dropped in August to the $10.50 area and it has hovered here.Regulators slowed down the acquisition of the Empire Electric Company.Now the Park Water System is adding to earnings according to AQN management.Not the O'dell wind farm yet.Although AQN expects to hit $500 to $525 million adjusted EBITDA or $2.00 a share the price has not bounced back to it's summer levels.This although the yield is now more than 5%.
     It is possible that investors are still nervous about American regulators even with the higher yield.This blog predicts that once the yearend adjusted EBITDA of $500 to $525 million comes in the stock will push back to it's summer levels.Also I am sure that investors want to see revenues and earnings coming in from O'dell this year and Empire next year.This is likely the catalyst to send Algonquin to new levels above $13.
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Chorus Aviation's new Revnue Diversification Strategy

 On  November 9 Chorus  came out with their latest quarter's results.They have been restructuring fro several quarters now and find themselves in a place where they can  diversify even further.Chorus tells it's readers that total revenues were down from Q3 2015 while adjusted EBITDA was ahead by only 2%.But Chorus has made quite a few changes since then.This includes increasing their leasing revenue under the CPA by 51% to $72 million.They have also streamlined their Voyageur business and established a Voyageur Avparts business.Lastly they have established a relationship with Air Nostrum(Spanish) and leased 4 aircraft to them.
   The third Quarter
   Chorus showed investors adjusted EBITDA of $70 million and states that it is only 2% better than Q3 2015.But it was about 40% better than Q1 and Q2 of 2016.In fact both Qtrade and Yahoo Finance estimate 2016 adjusted EBITDA of only $66-$70 million.It seems that the financial websites have underestimated the 2016 Chorus performance.For 9 months Chorus shows that although revenues were down adjusted EBITDA was recorded at $179 million.This blog estimates that total 2016 adjusted EBITDA will be at about $250 million and earnings per share (e.p.s.) of about $2.05.This is well above the present dividend of $.48 but Chorus does have some extraordinary items to consider also.For example, net income was $99 million for 9 months and was helped by a smaller foreign exchange loss than in 2015.But free cash flow is big enough for Chorus management to start looking at an increase in the dividend soon.               

      The Fourth Quarter
    Should Chorus show increases in aircraft leasing revenues and Voyageur revenues in Q4 they will be in a position to raise the dividend back to the old level of $.60 per share.Maybe not in one step but perhaps in two steps.Perhaps investors will get more information then on their progress on Air Canada Express.But there should be no doubt that many investors will be impressed with their diversification strategy.          use Workathon for business forecasts ; use Workathon for business consulting

Tucows does it again- another solid quarter

      Workathon is the blog I use for new subjects and to explore new areas or new companies.This post is dedicated to a company not previously covered by either of my two Blogger blogs. Tucows is an uprising Canadian technology stock trading at about $42 a share. On November7 Tucows released it's third quarter results;they were substantially better than most of it's competitors.In particular,the results were better than that of Kinaxis, another Canadian company with a much larger market capitalization.                        

   How do the Numbers Look?
     (a)Earnings
        For starters Tucows had positive earnings per share while Kinaxis is still showing  negative earnings and e.p.s.Tucows had a 55% increase in e.p.s over 2015 at a record of $.45 per share.It's P/E ratio was high at 25 times but for a software company was remarkably low.Shopify, for example, shows a P/E ratio of 55 times.And Kinaxis has a P/E ratio of  -(464).Tucows only shows a modest growth of revenue at 11% but adjusted EBITDA grew by 48% over 2015 to $8.6 million.
     (b) Growth
   It's two main products are Ting Mobile and it's domain services for the internet.Their Ting Mobile services are expanding in the United States every month.But Tucows is always on the look for a new acquisition.As it has contacts and connections with other Canadian internet services.This blog expects this side of it's business to show growth in 2017.
     (c) Assets
   Both Tucows and Kinaxis have a similar  asset base;both have slightly less than $130 million in assets. But as most investors know the amount of assets are not so important to a software company.More important is the market value of these assets or the market capitalization.Here is where the two differ to a large extent;Tucows has a market capitalization of about $440 million while Kinaxis has a market capitalization of about $1.6 billion or four times the size of Tucows.
      Going Forward
    Tucows does need greater revenue increases;it is still behind Shopify in this category.And revenue growth was only about 11% in this quarter.A reasonably small tuck-in acquisition would be a good idea at this stage of their development.However their earnings and earnings growth are solid;here they are better than their competitors.As this author has mentioned in other blogs Tucows' float is quite small and less than Kinaxis and Shopify.A small rights offering or a secondary equity offering would be beneficial over the long term.But Tucows' basics are solid and investors should realize that this stock is quite a bargain at these prices; this blog sees it trading in the $50 range by Christmas.All it needs is one more good quarter and it will be there.                         use Workathon for analysis of internet stocks  ;use Workathon for business consulting                  

Transalta Renewables moves forward,down under (Austarlia)

Transalta Renewables (RNW) is a Canadian utility with a major project in Australia which is where the koala in the caption lives;this project is in the area called South Hedland,The project will be finished in mid-2017.Until then it is a drain on it's capital.The return on equity will be substantial but it is a rather large investment.They have spent $224 million and have another $87 million planned for the remainder of 2016.This will be done with debt as their payout ratio is now around the 100% mark.That aside earnings and comparable EBITDA will be ahead for 2016.This indicates that the assets handed down from Transalta have been a nice mix of profitable assets.RNW goes on to say that "performance is tracking towards the upper end of guidance for 2016".

What Do the Numbers Say?

Both Qtrade (an independent broker) and Yahoo Finance put their estimate of earnings at around $.56 to $.60 per share.But that figure is out of date as the new figures put the best estimate of annual EBITDA at around $300 million based on the 9 month earnings.EBITDA (comparable EBITDA) is according to this blog the best estimate of earnings and earnings per share (e.p.s).So using these numbers this blog predicts e.p.s. of about $1.35 per share.This is a substantial increase over 2015 and without any revenues from South Hedland yet.

Conclusion

It is possible that Transalta Renewables is being a little too optimistic when it gives guidance of $300 million EBITDA for the year.Yahoo Finance forecasts only around $200 million.But RNW shows comparable EBITDA of  $200 million for 9 months so it is more likely that Yahoo is low here.This blog cannot see e.p.s. of less than $.80 for 2016;this means that earnings will increase by at least 33%.The third quarter is not a hugely important milestone for RNW but 2016 as a whole is.It is a transitional year as 2017 will start to bring in earnings from it's Australian assets.It does have some revenues from a natural gas pipeline in Australia now but South Hedland is much bigger.In other words, 2017 will be the first year that RNW has significant earnings from assets not downloaded from Transalta,it's parent.This blog believes,by the way, that Transalta may download more assets in 2017 as it still needs cash as has a significant amount of assets.Also the transfer of shares that comes with a download ensures that Transalta keeps a significant percentage of Transalta Renewables.On top of that we will soon see who has forecasted more accurately - RNW or the financial websites.              use Workathon for financial analysis of utilities

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Newmarket Gold to Kirkland Lake Gold- Lets' dance first

On October13,2016 both Kirkland Lake Gold and Newmarket Gold came out with their quarterly report.Both showed improvement over the previous quarter.Newmarket (NMI) showed production of 56,000 ounces for the quarter and 175,000 ounces for the year to date.Kirkland Lake (KLG) showed production of 77,300 ounces and 208,000 for 3 and 9 months.Both have robust cash balances and improving grades of gold being mined.But in a press release in September Kirkland Lake wants to merge with Newmarket Gold.On the surface this seems to make little sense as there appear to be few synergies here.Most of Kirkland Lake's assets are in Northern Ontario and most of Newmarket's assets are in Australia.But there is a common interest these two share- the huge Fosterville mine assets.

Increased Production

The Fosterville mine showed production this quarter of 37,000 ounces which is 1% below the last quarter.This has allowed 9 month production of only 175,000 ounces for Newmarket Gold and 2016 guidance of only 225,000 to 235,000 ounces.This is a very slight increase over 2015.But in 2015 and 2016 Newmarket has found much more ore at the Fosterville site.Recently they found a new discovery at the Lower Phoenix Gold System in the west lode and in the Eagle Fault System.No new assessment of the size of the deposit has been given but this blog has estimated that the total deposit may be as high as 4 to 5 million ounces with all extensions counted.But production from the mine has not gone above 37,000 ounces for a quarter or 160,000 ounces for a year.This is the problem and Kirkland Lake has seen it and made their bid.

Kirkland Lake Gold looks good

At first blush this looks like a good takeover.Kirkland Lake has offered $2 billion and will get 57% of the new merged company.NMI shareholders will get $5.28 a share for shares now trading at about $3.75 a share.But will shareholders get the maximum value for their shares?There can be no doubt that NMI management is not getting sufficient production from the Fosterville mine and new management might help here.But there are no apparent synergies between the two companies.Can shareholder value be maximized by allowing KLG to take a minority position with their approval?The problem is that NMI at this point does not know how much additional gold is in the extensions from both the Fosterville and the Cosmo mine.So how can NMI management put a true value on Newmarket Gold?It is very difficult at this time according to this blog.

Other Options

Don't get me wrong; I know that this is a "bona fide" offer but NMI has other options as discussed in my post on Blogdaleupsome of September30,2016 see details of options for NMI.Newmarket Gold could approve of a minority position by Kirkland Lake Gold and start to work more diligently to increase it's production at both mines.One possibility is to put a second mine entrance to the large Fosterville mine and increase production.If legal problems exist with the old owner of the Victoria State mines then resurrect Crocodile Gold and put all assets not formerly owned by Aurico Gold into Crocodile Gold and Newmarket would own 100% .However first NMI management must deal with a pretty good offer from Kirkland Lake.This blog notes that no date has been yet set to give approval to the KLG  offer.Maybe there will be no shareholder vote if enough substantial changes can be made in the NMI operation.                 use Workathon for the valuation of resource stocks

Element Financial will finally split up

             Element Financial has been talking about it for months or is it years.They gave a press release that states the split up will occur on October3,2016.This blog doubted that such a split would occur nor could Steve Hudson get shareholder approval for the split.But Element Financial announced in a recent press release that the split would go through and that one old Element Financial would give the shareholder one new Element Fleet Management and one new Element Commercial Finance.Shareholders approved the split unanimously.The new shares presumably would trade on October3 or shortly after. But at what price?
        The New Deal
      The vast majority of assets are in the now called Fleet Management division and so would be after the split as well.Element Financial (EFN)  now has total assets of almost $21 billion and 65% to 75% of them would go to the new Element Fleet Management with the other 25% to 35% going to Element Commercial Finance.Total debt now stands at $16 billion and likely the allocation of debt would be along the same lines. But no guidance has been given here and it is possible that debt will be allocated on a project basis and less debt will go to Commercial Finance.This will have a tremenduous impact on the price of the smaller stock.Consolidated earnings will be the same although there will be a 10 to 15% increase for 2017 according to guidance.So earnings for 2015 will be about $1.65 to $1.75 before tax and about $1.25 after tax for the whole entity.And earnings before tax for Commercial Finance will be about $.45 before tax;this means that earnings before tax for Element Fleet Management will be about $1.25 to $1.30 for the year.This likely means that Element Fleet Management will trade at close to it's present value. and maintain the same P/E ratio.And Element Commercial Finance should trade at close to the $5.00 to $6.00 range. It may not open there but it will climb to this level by mid-2017 and keep a P/E ratio a little less than Element Fleet Mangement as it's growth rate seems smaller.
        Conclusion
   Many investors(including me) thought that the split may not be beneficial to them.But Steve Hudson has engineered a split that should please almost everyone,that is all three penguins will be happy (as in the caption above).This blog does not see Element Fleet Management retreating;it may move gradually towards the $18 level.But the bonus to existing shareholders will be Element Commercail Finance for which they will own in equal proportion to their existing stock.In theory, this split may allow for a 25% to 33% gain to old shareholders by mid-2017.The starting price for Element Commercial Finance will depend on the allocation of existing debt but even a low initial price will likely see it trading at a minimum of $4.00 by year-end.                                                         

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Is Air Canada Express on schedule?

     In it's last quarterly report ,Chorus Aviation talked about moving towards some kind of new agreement with Air Canada on the operation of Air Canada Express.It is not clear yet whether this has been covered in the Air Canada amended CPA agreement.But a number of things are becoming clearer.Chorus and it's partner Georgian Air Lines own the majority of the equipment(140 of 171 aircraft) in Air Canada Express now and Chorus has already ordered new aircraft for 2017.The division of duties or functions as well as revenues has not been decided yet.Or if it has the public has not yet been told of it.This blog predicts that Chorus will have more,not less, earnings from the new operational agreement.It is also likely that Air Canada will earn more revenue under the new setup as well.
                                      

    The new Chorus Structure 
 Workathon has in the last two or three posts on Chorus talked about the new structure that is emerging from out of the old company.Chorus now has a bigger maintenance operation and it has a new specialized charter operation centred around it's latest acquisition called Voyageur Airways.Both seem to be bringing in additional revenues and earnings.Consequently after Chorus showed in 2016 a good first quarter of $.29 or $.30 per share this blog predicted annual earnings of about $1.25 per share.But Chorus showed investors in the second quarter that it's earnings exceeded all analysts predictions as it came in with earnings per share of $.54 to $.56 .This increased this blog's prediction for annual earnings of $1.65 to $1.85 per share.
  It is hard to explain the extra earnings when the revenues from the amended CPA agreement are coming down not up.One possibilty is that Chorus is now earning more money from it's secondary operations such as maintenance and charter business.But it must be generating some earnings now from the Air Canada Express operation.According to Macleans magazine Air Canada has had two bad quarters in a row and needs more revenues and earnings.According to Macleans magazine Air Canada needs more revenues and it would be in their interest to make Air Canada Express more profitable.This blog agrees with this position and feels that giving more autonomy to Chorus and Georgian Air Lines to run Air Canada Express will certainly help.So with this in mind it is likely that Chorus will have another good quarter coming up and e.p.s may even beat that of the second quarter.
                                                  

               The third Quarter
   Chorus Aviation has increased it's earnings per share above expectations in 2016.Qtrade (a small broker) estimates their earnings per share at about $1.60 per share for the year and Yahoo Finance estimates it at only $.80.Workathon estimated annual e.p.s. at $1.25 per share after the first quarter and now (after a good second quarter) at about $1.75 per share.Chorus may be making more from Air Canada Express than all parties originally forecast and now may be ready to beat the trend of the first half.If so look for Chorus to hit $7.50 in October.I don't think Air Canada will be unhappy.