Hap (Robert) Sneddon FCSI Atlantic Power Corp. ATP-T COMMENT May 26, 2014

They have slashed the payout and are now trying to sell themselves. The stock price has just plummeted. This is the problem with these former income trusts with very high payout ratios. In the end you have to ask is it well covered and what is the percentage that is being paid out.

The consensus earnings estimate in the next 12 months is minus $0.47. Up until recently, they have been paying out dividends of $0.39, so clearly something didn’t fit, so the dividend had to go. Not a terribly strong balance sheet. If it gets down to $1.84, he would probably take a swing at this one, but with his heart in his hand.

Downgraded on the first dividend cut and now they did it twice. Negative on earnings growth potential as well as on management. The cash flow is enough to support the bond so he would not be worried about them.

Their merger and sale is off the table. They slashed their dividend to $0.12. He thinks that there is no way that they can do any developments and there is no free cash flow after the dividend. His call is that this should be a $2 stock.

Verizon (VZ-N) or Atlantic Power (ATP-T)? He would go for Verizon which gives you more security of income. This company cut its dividend in half, and there is never just one dividend cut usually.

When you look at the earnings forecast for the coming year, minus 37%, even the dividend they are paying now doesn’t cover what they are paying out. What concerns him is the long run balance sheet trend back to 2011, which is in a downward slope. It doesn’t have a particularly robust balance sheet and is paying out too much in dividends and selling at BV right now.

It seems to find support in the mid-$2s. It has failed to break out. There is good support at $2, but he would not be that hopeful that it is heading back up. He is semi-bearish.

Return on capital went down to 1% and is now hovering at 3%. It is not as strong as other utilities so he would stay away from it.

He does not like it. They cancelled their dividend. You expect one from a utility. The share price is down about 10% this year. Things are improving, but he does not recommend it.

They generate electivity and sell it. As we move in this direction this company will have a foothold and niche. It is a capital intensive business and interest rates rising will be a problem.