Canaccord Adams Analyst: TransAlta Takeover Unlikely

| About: TransAlta Corporation (TAC)

Financial and economic turmoil have reduced the chances of a takeover at TransAlta Corp., (NYSE:TAC) and there are increased worries of weakness in the power market going forward.

This comes from Canaccord Adams analyst Bob Hastings, who cut his price target on the drifting electricity generator from C$35 to C$28, to reflect the removal of a takeover premium and the risk of slower earnings growth.

In early August, TransAlta’s board said a C$39 per share, or C$7.8-billion offer from two U.S. private equity firms undervalued the company.

Mr. Hastings said in a note:

When the potential of a takeover by LS Power and Global Infrastructure Partners was announced on July 21, we indicated that the fundamentals of the company were deteriorating and that the stock would be closer to C$30 without the speculation of a takeout offer. Since that time, stock market conditions have deteriorated, and earnings, cash flow and EBITDA multiples for energy utility stocks have contracted.

The analyst also noted that if TransAlta traded at P/E and EV/EBITDA multiples similar to those of Canadian Utilities Ltd., it would be worth C$23 per share. So while he believes TransAlta has a fundamental value of C$28, market conditions could drive it lower in the near term.

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Tagged: , Electric Utilities, Canada
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