Opinions
Gajan Kulasingam
Capital Power
CPX-T
COMMENT
Mar 31, 2015
Stock price when the opinion was issued
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Not a bad idea. Whole sector has done really well on AI themes. Issued equity at $58 to improve balance sheet for accretive M&A. Good company. Dividend's not what it was, as the price is so much higher.
You can see from the chart that taking profits is wise, but TD may not be the best choice. Choose BMO instead.
Took off in second half of this year due to Alberta government announcing data centres. But it's only a letter of intent at this stage. Alberta makes sense because its power plants are under-utilized and power is cheap. She wants more clarity on whether tech companies will want to build there.
Likes the assets and growing diversification. Stock took off on speculation. Wise to take some profits.
Our PAST TOP PICK with CPX has triggered its stop at $59. To remain disciplined, we recommend covering the position at this time. This will result in a net investment gain of 39%, when combined with our previous guidance.
Next downside potential is ~$49 (the 200-day or 40-week MA). The big runup on the chart is part of the whole AI derivative trade. There was support around $60, and it busted through that by 15% in one day on Monday's DeepSeek news. Uptrend has been broken, the bounce is over, downtrend likely by another 10% to resume and head to $49.
You could sell a bit here and buy back around $49. If you're looking to buy new, just sit on your hands and wait till then.
In the fall, stock really moved up on excitement over data centres. He took his position from 6% down to 3%, rolling proceeds into NPI. But now it's at the top end of his buying range.
Major US acquisition; his partner and son, Jamie, tells him there's a bucket of FCF in there. Haven't completed all their homework, but he suspects they'll buy more if it gets to ~$43-44.
Renewable power assets all across the US and Canada. Natural gas is big for them; also wind, solar, and battery. Numbers reported this morning came out well ahead (by 17%) of consensus. Managed costs effectively in the quarter. Likes the management team. Yield is 5.11%.
(Analysts’ price target is $64.73)
This is essentially an Alberta-based power generator. Within the utility space, this has the most upside exposure and downside risk to Alberta Power prices. Management has done a good job of diversifying away from Alberta, and it generates a significant amount of free cash flow. Over the next 2 years, he thinks it can generate roughly $300 million of free cash flow. If you are looking for a business that gives you merchant power exposure to Alberta at depressed power prices this is interesting, but you have to be cognizant that you are taking on a fair amount of volatility and risk.