Canaccord Analyst: Distribution Cuts a Negative for Algonquin Power

In what might some consider a bit of understatement, Canaccord’s Bob Hastings writes in a note that the consequences of Algonquin Power Income Fund's (AGQNF.PK) decision to cut its distribution rate by 74%, to C$0.24 from C$0.92, is “very negative” for the utilities trust.

“We expect a wholesale change in investor base,” Mr. Hastings says. “Income-oriented investors are likely to switch to  higher-yielding investments.” As well, angry investors may just dump the units regardless of price, something that may have been reflected in Tuesday’s plunge in share price, to C$2.92 from C$5.53. “Suspicious investors may speculate there is more bad news coming and also dump,” he adds, while buyers will wait to see where the trust units settle.

Mr. Hastings notes that Algonquin Power is moving to a company growth model and “we suspect its units will eventually trade based on utility/pipeline valuation metrics based on earnings, payout ratios and growth.” The distribution cut was made in order for the  trust to retain capital to finance growth opportunities.

In the near term, the analyst suggests the stock will be overwhelmed by selling pressure. However, he expects the price of the units will recover to C$6. “as the trust’s growth strategy becomes proven and market valuation metrics evolve from low bear market levels, its valuation could expand materially." Mr. Hastings has put his estimates and recommendations for the trust under review.
 

Comments

[enviro111:]

This was an extremely bad move for the management of Algonquin.

During tight markets debt financing is virtually unavailable and a $2/share stock can't make any acquiestions. GROWTH - what a crock!! Who buys a utility for growth in this market - get real!!!

In fact, they should have just cut the dividend by 50% instead of 75% This would have preserved the stock. Prior to the cut it was trading at a 22% yield instead of the normal 12-15%. The market was expecting a cut, not a beheading.

Also, management is rewarding itself with big compensation packages while the ordinary investor is cleaned out. Once this stock gets back breakeven point (I bought at $4/share last week), I will be gone and never return. Crooks I do not need. Also, can you say lawsuits?

Management should have put the word out about their plan and made this a more orderly process. The extremly high distribution should have been cut back gradually long ago.

This business is really all about water - water flowing over a rock to make electricity and water purification. They also own a few windmills and a cogeneration facility. All the power is sold into long term contracts. This is a business as sharpe teenager could run. Yet this management screwed it all up. Stock has fallen from $10/share to $2.50 over a few years. What a bunch of dopes!

The only group which is worse is the Canadian government which killed the trust format a year or so ago. A bunch of greedy buggers! They killed their little golden goose because they needed a little more tax income. In the process the capital losses will be over $100 billion on these trusts and growing. I hope Harper and Flatherty (Flatulence) are happy.

2008 Oct 22 03:55 PM

[Pay me monthly:]

Well said enviro,

As someone depending on dividends to make ends meet, this company has all but wiped out my retirement and future. I have no choice but to sell and salvage what's left of my investment.

I was holding quite a few Canadian Trusts when they/we were slaughtered because the Canadian government changed their mind. I took the losses and sold most of my holding.

Believing in Algonquin Power and expecting the stock to slowly decline as the tax deadline approached, I made the horrible mistake of not only holding the stock but buying more with the money from the other Trusts I sold. To compound my stupidity, I reinvesting the dividends.

Was the plan to create an attractive investment opportunity to draw in capital from the US, build up Canadian companies and then destroy the investors? If so, well done.

I will never own another Canadian stock for any reason; I can't afford to.

2008 Oct 28 10:31 AM

[User 289727:]

Does anyone know the future of this company. Taking such a big hit, it looks like a great opportunity to get in an outstanding price.

If the dividends were 12-15% at $6 and it is now selling for $2.00, it looks like in time, it will be paying you a 40% dividend. That doesn't sound to shabby.

Also, does the Canadian govt take it's 15% off the top on dividends to Americans with this stock?

2008 Nov 01 04:06 AM

[knownothing...:]

I've owned this puppy for a bit over four years. My net cost, including dividends, stands at around four dollars and a half, U.S., a share. Yes, in answer to your question about the Foreign Witholding Tax (FWT), U.S. investors have 15% of the dividend withheld.

knownothing


On Nov 01 04:06 AM User 289727 wrote:

> Does anyone know the future of this company. Taking such a big hit,
> it looks like a great opportunity to get in an outstanding price.
>
>
> If the dividends were 12-15% at $6 and it is now selling for $2.00,
> it looks like in time, it will be paying you a 40% dividend. That
> doesn't sound to shabby.
>
> Also, does the Canadian govt take it's 15% off the top on dividends
> to Americans with this stock?

2008 Dec 01 02:40 PM