Algonquin Power & Utilities Corp (AQN.TO)

It dropped so quickly. The founder left a few years ago--maybe that was the signal. New managers came in and let their floating lending rate debt levels get out of hand as interest rates rise. This hampers growth. There are delays in their projects, which means higher taxes. However, they cut their dividend and righted their guidance. Overhang is this Kentucky Power takeover, with a April 26 deadline. (Regulators have twiced declined the deal.) If it happens, AQN will take on more debt to fund this. AQN has good assets and it trades at a discount to peers. They will not issue equity for the next few years, but sell some existing assets to finance growth.

Then, last Friday when markets were selling off yet again, AQN rallied 3% after issuing its latest report. Q4-2022 adjusted EPS came in at $0.22, which missed the street’s estimate of $0.27, while the full-year clocked in at $0.69 “near the top end of” their revised guidance. At least Q4 adjusted earnings rose 10% YOY while full-year gained 6%. Further, the company sold nearly $360 million of wind-power assets before 2022 ended to shore up the balance sheet. By the end of last September, about 22% of their debt consisted of that nasty variable rate stuff. By the end of 2022, about 89% of debt was fixed. Read Adobe and Algonquin Power: Out of the Penalty Box? for our full analysis.

Does not follow company.
Company underperforming.
Very tough business model to make returns. 
Not impressed with management team.
High debt with poor assets. 
Equity issuances not good for investors. 

Has sold shares the past year.
Under pressure since November 2022.
Company has difficulties with operations.
Dividend cut by 40% recently. 
Better names in the sector.
Waiting for management to get control of company. 

Kentucky Power acquisition in question.
Optimistic on future of business.
Good long term hold.
Current share price presenting a buying opportunity. 

Cut dividend to a yield of 6%, and he wishes they'd cut more. Stopped the DRIP, which will help finances. Selling $1B of assets. All these things will keep credit rating where it is, which is very important for a utility. Two important questions. What assets are they selling and how much do they get? Secondly on Kentucky Power, April 26 is when they can walk away and pay a small breakup fee of $65M. Acquisition was overwhelming, would force them to take on more debt, and really hurt the stock. Thinks the market would prefer them not to do the deal.

Not one of his better moves, but he's still holding. Trying to get the Kentucky deal done. In a perfect world, the deal doesn't go through. Need to get debt down and rebuild confidence with investors. Dividend cut did not help. Got ahead of their skis. 

Owns shares in company.
Believes in prospects for company despite recent troubles.
Company caught offside by higher interest rates (floating rate debt).
Large Kentucky Power acquisition will be tough to digest.
Management has lost credibility in past few years.

Down 40% last few months. Rough Q3. Higher interest rates and taxes. Earnings profile should stabilize. Inexpensive valuation compared to peers. Good assets. Don't just toss it, as you're giving up too much value. 12x earnings. Window of opportunity to turn things around. Whether Kentucky Power goes through or not, positive either way. Reasonable path to $15 over the next 2-3 years. Yield is 5.87%.

Many headwinds lately. Fortis and Hydro One make more sense, offering stability and dividends. AQN has been basing since December. Technically, this looks rough. If you own it, hold, but don't enter this.

Floating debt making business hard with rising interest rates.
Recent Kentucky Power acquisition makes future uncertain.
Would recommend buying.
Good long term hold.

They bought that Kentucky company at a time when they needed to repair their balance sheet. The stock has been punished already, but will take some time to correct. They are cutting their dividend. Wait a year or so to see where the company is at.

He owned it but sold at $16 to $17 since he didn't like the deals it was making. There are too many headwinds in the industry including rising costs to build new structures.

Continues to pursue Kentucky Power, which is the right move because utilities don't come up for sale very often. They can take that utility and repurpose it. When a utility comes off so badly, you have to look at it as a buying opportunity. Renewable part struggling, and management needs to do better on this. He doesn't have confidence in management. If the assets are good, management is temporary.

He sold it in November 2021 when they bought a Kentucky company; didn't like that ROI and many institutional investors still don't like that deal for its huge capital cost, but limited return. They recently announced a 40% dividend cut, and they must sell some assets (but AQN hasn't said what). This is dead money until management regains credibility.