Northland Power continues to build Offshore

       Workathon has covered every step of Northland Power's expansion.It took a huge step in 2015 by planning to and then building it's first offshore wind farm called Gemini,a 600MW behemoth.Then came the smaller Nordsee One at 332 MW.Both were built in the North Sea which reportedly has the strongest winds in the world.This went well and now they are completing the third one called Deutsche Bucht.But the focus now is on the China Sea and 3 new wind farms,each 300 MW.
                  The Fourth Quarter
  Most financial indicators were lower than Q4 in 2017.Revenues and adjusted EBITDA were lower than 2017 which was a quite good quarter. While free cash flow was greater by about 22%.                Net income and free cash flow were tight while NPI was building Geminin and Nordsee One, each costing about $2.5 billion.In 2015,2016 and 2017 financing costs were high and revenues were not yet reported.Now,in effect, Northland is over the financial hump.
                   2018 Financial Highlights
   Sales increased from $1.4 billion to $1.6 billion in 2017.This was primarily because of a full year of production from the 332MW Nordsee One.And adjusted EBITDA increased from $765 million to $891 million (the top end of guidance).Net income had a huge increase(47%) over 2017.While free cash flow increased 30% over 2017 to $1.90 per share.And management expects that e.p.s will be in a range of $1.75 to $1.95 again in 2019.Adjusted EBITDA should increase from $890 to the range of $920 to $1010 million.Their new offshore projects will make up the difference.
                  Construction Updates
      Most Northland Power shareholders are not terribly interested nor surprised by the Q4 results. They are more interested in the development of the new offshore wind farms.Their last wind farm constructed in the North Sea called Deutsche Bucht is now contributing pre-completion revenues and will be finished on time in 2019.It is about 270MW and will cause a significant jump in revenues and earnings in late 2019.They also have 3 new offshore projects in the China Sea off Taiwan.And they have all permits and approvals for the first called Hai Long 2A;permits and approvals and their PPA is expected for the other 2 in 2019.This overcomes the main slowdown that NPI had in the North Sea.Where it completed all it's construction but had to wait for approvals and it's PPA.This blog expects that pre-completion revenues will be coming in from Hai Long 2A in Q4 and for Hai Long 2B and 3 by mid-2020.
                Huge Increases in EBITDA
   Northland Power has a reputation of building big ($2-3billion) offshore wind farms on budget and on time.And each wind farm ,when completed,produces very large increases in EBITDA.Their Deutsche Bucht project will be finished in 2019 and is even adding pre-completion revenues now.The blog 4-C  Offshore says that there is no construction started on Hai Long 2A yet.But this blog believes that there may be pre-completion revenues by Q4 of 2019.So consequently adjusted EBITDA will be at the upper end of the range of $950 to $1025 million.While free cash flow is expected to be $1.65 to $1.95 per share.Look for NPI to be around $26 to $28 per share where it was in 2014.   https://bam.brookfield.com/  https://www.otpp.com/

Elliot needs to clean up his Act

        Here Elliott refers to Elliott Noss,the CEO of Tucows. As most people know Tucows ia a Canadian technology company that I have spent a lot of time on.And it has just reported it's  fourth quarter and annual results.The annual results were quite good as Elliott has done a good job here but the report itself is quite amateurish.Tucows is now a billion dollar company and an annual report that says earnings come from domaine names and Ting a small mobile telco is ludicrous.This could actually hurt the stock price if investors

  were not able to see that the company is a bonafied software company that is actually doing  very well.It is true that   2019 e.p.s came down from e.p.s of 2018 but it's results are ahead of almost all Canadian technology companies.It seems to be very well managed.For example, it's adjusted EBITDA exceeds both Kinaxis and Shopify.

          The Quarterly Report
            This quarterly report also has annual results but all the Tucows' quarterly reports have little useful information in them.And they talk about making revenues and profits from domaine names and a small mobile company called Ting.They apparently made a small acquisition in another company that sells domaine names called Enom.If this was true then they would likely be as profitable as Go Daddy and have the same market capitalization.The quarterly reports cover the real software business that has been so successful.
     However the figures in the report as well as it's performance is quite impressive.Elliott must work hard to earn his impressive salary.Yet most of the Q3 figures are down from the third quarter of 2017 except for adjusted EBITDA.Revenues are down 6%,net income is down 60% and cash flow is down 24%.This is not a good trend and means that some of that abundant cash flow should be spent on new initiatives.That aside, the annual figures show better.
         Conclusion 
      My last blog on Workathon on Tucows dated (20/02/2017) stated that although Tucows was performing well it did need to show that it was more sophisticated than selling domaine names.The quarterly reports cover up the real business;it manages  a number of software companies and makes revenues from online advertising(as with Yellow Pages).It is the belief of this blog that it's P/E ratio and the stock price would come down if this was not true.Furthermore mentioning Ting as a major activity is also not conducive to a high P/E ratio.So in conclusion, their earnings are good but their description of activities performed must be improved or Elliott must go.This is good for the long term valuation of Tucows.This blog feels that this should be mentioned at the next A.G.M.(Annual General Meeting) and be the basis of a challenge against  Elliott as chairman.        
                                    https://www.fidelity.com/

The Emergence of A New Health-Care Star- Medical Facilities (DR)

  Medical Facilities (DR) is a health-care company with an  unique approach that has grown rapidly over the last 2 years.It was $10 per share a year ago and has grown to it's present price of $17.50 per share.It has a market capitalization of about $550 million.And it has a very interesting and unique business model that should allow easily for future growth.To that end, Medical Facilities just had a good third quarter. All DR facilities are located in U.S.A.
       Third Quarter Results
 Total revenues were up 17% over 2017 to $104 million with organic growth of 7.5% Adjusted EBITDA kept pace with a 17% increase.While income from operations was $17 million ahead by 33% over Q3 2017.Medical Facilities has an unique niche as it does surgical work for hospitals, health-care facilities,doctors and insurance companies.Bigger organizations out-source some of their work to Medical FacilitiesBecause on the one hand it does surgical operations faster than many larger hospitals.On the other hand,it does surgical operations more cheaply and in some cases more complex than what  smaller hospitals can do.In order to do this Medical Facilities has to and does have a very lean and competent operation.
     Nine Month Results
   Revenues increased by 13% to $308 million.Income from operations increased 16% to $49 million.But the big change was the increase in e.p.s. from a loss of $.11 to a gain of $.07 for an increase of 164% for 3 months.And for 9 months e.p.s grew from $.33 to $.39 per share.                          

      Capital Structure
  Medical Facilities has  a market capitalization of $537 million but  has only 31 million shares outstanding.It is a very tightly held stock; approximately 30% -50% of it's share are held by insiders.Consequently in 2017 net income before minority interests were $60 million but $30 million was paid out to minority interests.Net income declared was only $30 million.It is not clear what effect this has on the stock price;it does lower the P/E ratio but it looks like investors buy on the P/E before minority interests are paid.For Qtrade shows the P/E at 18 and Scotiatrade shows it at 25 but if net income is taken before the minority interests the P/E ratio should only be about 8 times earnings.However minority interests certainly do reduce the free cash flow as their net income is taken off the top.This blog believes that it is incumbent on management to lower the minority interest percentage to 33% over time.
             Outlook for 2019
  Medical Facilities will probably have steady growth in revenues and earnings in 2019 as it has a special niche that will only get bigger.However DR needs more investment to put in new facilities.This will require a new secondary equity issue.And the stock price will move ahead slowly as a good chunk of earnings will continue to go to the minority interests.Management needs to ensure that enough new shares in any new secondary issue go to  non-insiders so that the minority interests get a reduced share of their controlling interest.If the return on equity on the new investment matches the existing return or exceeds it then the stock price will rise and insider's share will gradually drop.Look for gradual changes in the capital structure and the share price to move up to $20 with increased earnings.             https://www.zacks.com/    https://www.fool.com/

Aimia is getting back on Track Again

  Aimia released it's third quarter results and it is starting to look like their trouble with it's Aeroplan program never happened.Principally revenues increased by 6% and net earnings at $22 million were up $61 million over 2017 while cash from operating activities were at $46 million.And adjusted EBITDA, the main performance indicator was $56 million for Q3.Their Aeroplan loyalty program has been sold and all liabilities taken care of.
      Q3 in Detail
    Consolidated revenues were up 6% to $372 million while gross billings were down only 4%.Adjusted EBITDA was ahead by $3 million over Q3 in 2017.It is true that free cash flow is down about $13 million over 2017.And Aimia is till spending some of it's adjusted EBITDA on restructuring (after Aeroplan).The cost of loyalty awards is up in 2018 not down now.But Aimia has made a concerted effort to reduce operating expenses as Q3 operating expenses have come down from $76 million in 2017 to $66 million.
            Aimia is Ready for Q4 

   Aimia sold Aeroplan for $450 million plus all liabilities and in this blog's mind this is not much for a loyalty plan that was once valued at $2.5 billion.So  Aimia should explore all loopholes to remain in an equity role and get a share of profits; this would be their best strategy. It is realized that Aimia management is beefing up their positions in their other loyalty programs and this is bringing in increased revenues.But a new,improved Aeroplan will be able to throw off a lot of profit and Aimia should have a "preferred position" here.This blog believes that until July 2020 (the end of the present Aeroplan contract) Aimia has an excellent chance to improve their position.And Q4 is a good time to do this.Like the lumbermen in the caption below AIM should probably do it in stages.         

         In Summary
    An earlier blog on Workathon expressed the opinion that it is probably not legal to cancel unilaterally a long running contract where there is no performance issue.At least Air Canada certainly does not have a strong ethical position. Aimia got $450 million but the value of it's liabilities could be valued at $1 billion with $.50 on each dollar of liabilities.And the blog on Workathon dated Feb.8,2018 expressed the opinion that Aimia should have a solid equity position in Aeroplan.The time to strike a bargain is before the present contract runs out on July,2020.
      That aside Aimia is getting back on track financially.All of it's financial indicators are ahead of those in 2017.In addition, Aimia's guidance shows expected free cash flow of $155 to $175 million for 2018.Things could be done in stages here also;Aimia should announce a small dividend will be paid in Q1 2019.Only then will investors be confident that Aimia is indeed back on track.
              Forecasts of past Blogs
       Workathon has had quite a few blogs covering  Aimia.Workathon dated 10/02/2018 announced that debt has been reduced to $208 million.Workathon dated 18/08/2017 forecasted a price of $3.25 to $3.50 by Christmas and  that expenses would be cut back.And my other blog Blogdaleupsome dated 14/08/2018 forecasted adjusted EBITDA for this quarter of $51 to $53 million and a forecast of $5.00 for Q1 of 2019.In fact, adjusted EBITDA will be $56 million and the other forecasts have largely come true but it is not likely Aimia will be at $5.00 in Q1 without the announcement of a small dividend.           http://www.caissepopulaire.ca/ http://www.canadapensionplaninvestmentboard.com/

Fiera Capital grows by Cleaning up Odds and Ends

                    It is very rare to find a stock that grows in a straight line.Usually there are pauses and corrections.Fiera has made a correction from the $15 level down to $11 to $12 range.And it has made a number of changes to start moving it upwards again.And assets under management (AUM) has  gone from $125 billion in 2016 to $139 billion  now.In 2017 it bought pieces of Natcan for a purchase price of $60 million. (see https://www.blogger.com/) Now it has just exchanged 5.5 million shares of CGOV for an unknown amount of FSZ shares at an excellent price.
     Fiera has a sharp business eye as there is a paucity of players in Canada that can be acquired for $25 to $100 million.Another such player is Canoe Financial and it has just bought $785 million of Fiera's smaller funds.In many cases the existing  Fiera manager will stay and Fiera may even collect a small fee here.This blog sees this as an opportunity to view Canoe's goods.Later on Canoe may be a candidate for acquisition itself.Fiera is certainly familiar with the funds just sold.                              

          2018 is Shaping up
   In early 2017 Fiera was trading at around $15 per share but like many financial players the price fell off.It was as low as $11.00 per share at one time but has rebounded to it's present $12.50 level.It continues to make these small purchases and sales and so will  likely show gains in revenues and small gains in earnings for the year.FSZ has purchased about 12% of  Natcan Funds each year since 2015 and will continue until it is owned 100%.It also owns about 27% of CGOV Asset Management and may buy another 5 to 10% by yearend.This blog sees Fiera buying most or all of Canoe Financial by 2019.So you see many junior funds grow by leaps and bounds but Fiera Capital grows by odds and ends.
                                       https://www.fairfax.ca/;https://www.omers.com/

Is CWB being punished for good perfromance?

  On September 15, Canadian Western Bank (CWB) released it's third quarter performance and what a quarter it was.The normally staid Canadian Western Bank showed double digit loan growth,higher net interest margins and adjustable cash earnings per share of $.75 per share which is up 9%.In addition, it raised it's  quarterly dividend to $.26 per share which is up 8% over the same quarter in 2017.What could be better than that?Well actually the share price could go up,not down!Before the quarterly report the share price was about $38/share and now it trades at $33 per share.

Second Quarter Highlights

Total loans reached $25 billion for the first time in the second quarter.This was achieved by 12% loan growth over the second quarter in 2017.And the CEO expects 2018 to have double digit loan expansion.Once again their growth in Ontario has been a significant part of this loan expansion.Shareholder's net income for Q2 was at $62 million which is up 11% over 2017;and for 9 months was $2.23 per share.Consequently adjusted earnings per share is on track to hit $3.00 per sharefor 2018.CWB tells us that their acquisition of ECN Capital assets contributed $.04 per share to total earnings.And that there was a significant contribution for their expansion into Ontario.

Safety Concerns

CWB is not only a bank with good growth but it is safe for investors also.It has very strong Basel III capital ratios.All capital ratios are at the upper limit of requirements.Also it's provision for loss income is up by $111 million or 10%.On the other hand, impaired loans now make up only .53% of assets compared to .74% in 2017.The dividend has been raised but the payout ratio remains in the 30-36% area which is considered very safe.And it's price/earnings ratio is at 12 which is quite conservative for Canadian banks which on average is higher.

Recommendations for Price Improvement

It could be that CWB  is suffering from the new kid on the block syndrome.It is growing faster than most of the established banks in Canada.After their strong second quarter results this blog thought CWB  would be trading at $40 to $41 per share.It is in effect, catching up.So it is possible that the other banks are selling off their stake in Canadian Western Bank to slow their growth.And there may be more selling to come but CWB must keep making improvements.With that in mind CWB must continue it's expansion into Ontario and even add another  branch here.This blog would like to see a separate identity called Canadian Western Trust (CWT) which would contain many of it's divisions such as CWB Maxium,CWB Optimum Mortgage,CWB National Leasing and CWB Franchise Finance.And their online divisions put together and called Mango or some such thing.Lastly in order to get more attention it could buy a small mutual fund dealer at today's cheap prices.These moves might reduce their loan growth and earnings growth which is substantial but raise their stock price.Unfortunately until retail investors join it will be a tough ride to get to $35 per share by January.

http://www.manulife.com/;https://www.fairfax.ca/

Power Financial has Simpler balance sheet plus Wealthsimple

     Power Financial has always been closely connected to Power Corp. and their finances are intermingled.But the wedge is in and now they are becoming more differentiated.For example, Power Financial hasa yield of 5.8% and market cap of $21 billion while Power Corp has a yield of 5.3% and market cap of $13 billion.Yet the biggest contributor to Power Corp.'s net earnings is by far Power Financial.And Power Corp. tells investors that it still owns 65.5% of Power Financial.And now POW tells it's shareholders that it owns 100% of Sagard Holdings and Sagard China which appears to be largely a mutual funds operation.But the big change is that Power Financial shows that it owns 81% of Wealthsimple a very large broker in Europe.As of yet no accounting has been made for  it's income contributions to Power Financial.
                  The Second Quarter
 Firstly Power Corp had a very good quarter and the main contributor to this good quarter was of course, Power Financial.PWF had a good quarter mainly because of Great West Life Insurance.Great West Life reported net earnings of $831 million and contributed $562 million to PWF.IGM Financial contributed $121 million and Pargesa Holdings a further $36 million.Total Q2 net earnings were $658 million the highest amount in corporate history.Putnam Investments, another holding, had a very good quarter.PWF had a record high assets under management (AUM).But as already mentioned ther is no mention of income contribution from 81% owned Wealthsimple.This new platform started in Canada but has spread to U.S.A and England.But as of today has only $2 billion in AUM.
                 Potential Changes
  One of the most natural changes is to make the quarterly report more investor-friendly.About the only information on the report is net earnings and the contribution from other companies to it's net earnings.Surely this is a holdover from the days when POW and PWF were so closely intertwined.Not so much information was required.This blog would like to see cash flow and free cash flow and payout ratios.Also the contribution from Wealthsimple is needed.                                                                                       
                                                                  
                       

     This blog is surprised to see that POW still owns 65.5 % of PWF.An earlier blog on Workathon showed the ownership at 61%.And frankly had hoped that the ownership would now be down to 55to 59%.This is the greatest use of funds that PWF could have.As POW takes almost 70% of their net earnings.One of my blogs on Blogdaleupsome states that the next best use of funds would be increasing ownership in Great West Life it's greatest contributor of net earnings (see Blogdaleupsome 04/05/2018).Qtrade,a small financial broker,shows that  PWF cash flow in 2017 was about $1.7 billion.That will be minus the $800 million paid to POW.This is still a tremenduous amount of cash that can be used to pay down POW ownership  in PWF and increase ownership of GWO and also expand investment in Wealthsimple.Power Financial moves slowly and so there will not likely be large changes made in 2018.Look for PWF to stay in a tight range around $30 in 2018 but also look for news about increasing ownership of Great West Life or decreasing ownership from POW.                                https://www.powerfinancial.com/en/