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Altagas Hikes: Stock Dives - Why The Market Remains Spooked


  • Altagas reported Q4-2017 numbers.
  • The stock dropped 10% in the next 2 days.
  • We review the numbers and what might have spooked the market.

It is a hostile market for yield. We have no doubt about this. Stocks are seeing prices that were previously thought of as impossible. So when Altagas (OTCPK:ATGFF) joined the ranks of "The Walking Red" we were not too surprised. We did however examine the financials to figure out what made the market finally realize that this needed to go much lower.

Overall numbers looked fine

Normalized EBITDA grew 14%, funds from operations (FFO) moved up by 11%. However on a per share basis, FFO actually declined slightly in Q4-2017 versus Q3-2017. The culprit of course was the share count which stood about 5% higher versus Q4-2016. Altagas was also hurt by higher administrative expenses related to the WGL holdings (NYSE:WGL) acquisition.

Cash flow

We were pleasantly surprised to see Altagas spend less than in 2016 and actually produce free cash flow from the combination of operating and investing activities.

Source: Altagas 2017 10-K

That, however still left very little to pay the dividends and Altagas issued significant amounts of common and preferred shares (unassociated with the WGL transaction). Still, this is par for the course for Altagas and in any other circumstances would not spook the market.


Altagas expects to acquire WGL mid-2018 and spend about $1-$1.3 billion CAD in capital expenditures. Considering WGL's stand alone run-rate of about $125 million USD a quarter, the two entities will spend about $1.3-$1.6 billion CAD in 2018. Based on current run rates, the two entities will struggle to produce even $1 billion CAD in operating cash flow. In the last 12 months two entities actually produced close to $800 million CAD in operating cash flow. That is based on WGL 10-K (page 55), and the above 2017 Altagas 10-K. Depending on the exact timing of the close, the two entities will also


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