Altagas Ltd (ALA.TO)

Incredibly cheap, and mispriced. The market doesn’t like that they made a transformational acquisition of WGL, the US utility. It is going to have to go through a year’s worth of regulatory reviews, but it will double their earnings, and effectively their yields and dividends will increase in about a year’s time. They beat numbers last quarter. Dividend yield of 7.6%. (Analysts’ price target is $33.)

They acquired Washington Gas and Electric. The acquisition, when it closes in mid 2018, is weighing on the stock. There are subscription receipts that are selling higher than the stock. If it does not go through you get your money back. You clip a dividend along the way. There is a 20% chance the deal does not go through. It is cheap compared to other companies. He has been buying on dips. There may be a concern that they have to raise more equity. It is a well run company and have a history of bringing projects on time and under budget.

Sold his holdings about a year ago because of valuation concerns, when the stock had gotten very expensive. It was trading north of 15-16 times EV to EBITDA. He would continue to avoid this, even with the setback in the stock price.

He said goodbye to it. It is too early to buy back. The most recent earnings went down and are expected to go down again when they report. Cash flow is negative.

(Top Pick June 9/16, Down 1.70%) He is picking it again tonight. They did an acquisition in the US, but some say it is too big, too utility and won’t go through. They had to do a big installment receipt. The deal does not close for 12 months, but you raise your equity right away. In the end he thinks the deal will get done and he now thinks there is potential for growth in the US.

It is yielding 7.5% and the acquisition in the US should go through. They have a further billion and a half of growth projects and another billion and a half it the deal does go through. The yield is likely to go down if the deal goes through, but that is a good thing because the stock price will have gone up. (Analysts’ target: $34.50).

Owns this in a few accounts. It is a midstream company. The yield is very attractive. In this past week, she has noticed all of these energy infrastructure names, including the pipelines, have been pulling back. This represents an attractive entry point for people who want income. Dividend yield of 7.6%.

There is some regulatory uncertainty as to whether their acquisition in the US will go through. The drop in stock price has boosted the yield. He thinks you are pretty close to the bottom so there is a value element to it.

Their big problem was the Washington acquisition. The Washington utility is well established with their facilities on the east coast. Altagas facilities are all on the West Coast, and is quite a different kind of utility. Just too big a change for him. Dividend yield of 7.5%.

The acquisition 6 months ago was won in the US against potentially many US competitors, and this is a concern because why did they win this business. They are going into areas where perhaps Trump wakes up with Tweets against Canadian takeovers of US companies. You will not get certainty of the success of approvals on this for another year. You could go to another company where you can get certainty going forward. This one will be under pressure until the deal is done. The sub-receipts are the way to play it because there is a guaranteed payment if the deal does not go up, but you get it converted to stock if it does.

Had a good quarter, and the approval of their WGL acquisition is now just waiting for the regulatory side of things. One issue is commodity prices in Canada. Canadian gas production has been a headwind. Also, they made a foray into the US, to provide some natural gas infrastructure into the California grid. With the WGL acquisition they are looking to divest some of that and putting proceeds into the Washington DC area. Thinks this is just in “show me” mode. Dividend yield of 7.25%.

Has a lot of conviction in this company. When their acquisition in the US goes through, you will probably see the company get re-rated. The large US acquisition is somewhat transformational in that it creates a company with much more predictable cash flows, and reduces their sensitivity to commodity prices. Right now, it is a little bit of a mix between energy infrastructure and regulated utilities. The acquisition of WGL tilts it more towards stable cash flow regulated utility power generation. When the acquisition is completed, you have very visible cash flow and dividend growth. The “subscription receipts” will eventually convert into regular shares. The “subscription receipts” trades at a discount to the equities, so if you are going to buy this, you should buy it through the subscription receipts.

As an established mid-streamer, building an LPG extraction/export facility and in the process of purchasing WGL, is this a good integrated play on natural gas? All infrastructure companies are decent long-term holds, and are all relatively expensive, but have pretty good outlooks and are struggling to get Canadian projects approved. Thinks this is good and he would buy the stock.

Switch this out for Enbridge (ENB-T)? This just did a US acquisition that is accretive, which is probably going to hurt as the Cdn$ goes higher. This is more commodity focused and the recovery is taking longer to take hold. This company could be a good, but he is pretty excited about Enbridge, which trades at a lower valuation and has very visible EPS growth of about 11%. It could be a good idea in a neutral tax situation.

Will the deal in the US go through? He owns the receipts, which is the right way to play this. If the deal doesn’t go through you are buying the receipts at $29 which pays a 7% dividend. If the deal doesn’t go through, you get $31 back. He thinks the deal will go through. Things are quiet because it is going through the regulatory hearings.