Capstone Infrastructure (CSE.TO) Buy, Sell or…

Capstone Infrastructure (CSE.TO)

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DON'T BUY

He would avoid. Cut their distribution significantly and there is a risk they could cut it again. Also, have to re-contract their Cardinal facility, a gas-fired power generation. If the cash flow stream is materially below the existing cash flow stream, distribution could come under further pressure.

WEAK BUY

Ditched it just before the dividend cut. Didn’t like what he saw. Thought they were over paying for some acquisitions. They will survive. They have valuable assets and are in a good space. They have a fair amount of debt. Could be good value at these levels but he is not thrilled by management.

DON'T BUY

Power generation. Has a couple of assets that you have to keep an eye on. Balance sheet and payout ratio were in trouble so distribution was cut and may have to be cut more. It had collapsed 23% in one day, he bought, it went up 9% in one day and he Sold.

BUY

Yields around 7%. Bought this when it dipped below $4 after they cut their dividend. Good assets. NAV is north of $5. Shorter-term, they are re-contracting one of their facilities and there is PPA which is going to expire 2014 but he still thinks you're getting it at pretty decent valuation.

TOP PICK

Had a big drop last December but has found good sideways motion. Exit if it drops below $3.80. 2.5% dividend.

HOLD

(Market Call Minute) Wishes he had sold it.

DON'T BUY

Preferred A’s. Capstone would be considered as a B type credit, which is close to junk credit which he normally does not like. When you are playing high-yield, you want to be in the senior debt, which is ranked so much higher in the capital structure. This one has weak credit and is trading at a distressed level and is pretty illiquid for trading.

DON'T BUY

Would stay away from infrastructure and the engineering companies that are in this. So many of them have 3 or 4 good quarters and then projects dry up for a quarter and the stocks get hammered.

PAST TOP PICK

(Top Pick Jun 12/09, Up 11.20% yield. Dividend play – distribution play. Fair debt load at this time. Has tremendous up side.

TRADE

Infrastructure trust. Spinning out Leisure world. Will take a hard look at Leisure World.

DON'T BUY

Excellent distribution of 17.5% but he questions if it can be maintained. Many dividend paying stocks available that have been badly beaten down with a greater upside and less debt.

TOP PICK

Some real dangers with this. Distribution very high at $.081 a month so would not be surprised to see a cut in 2010-2011. Could become a Corp in 2010 and the unit price could get hit. Short term, he keeps getting current distributions, medium term not so good, long-term better.

BUY

Not a lot of growth in power trusts so they don't carry a lot of weight in his portfolios. Because of their debt levels, he prefers Northland Power (NPI.UN-T). (See Top Picks.) Trying to become an infrastructure trust and acquired a nursing homes trust at too high a price and they have dropped in value. At this level, it is a Buy but wouldn't have it as your only holding. 8.75% distribution should be safe for the next year.

DON'T BUY

It's parent company MacQuarie out of Australia, has done a great job of building on a global basis. This company came out as a power income trust, acquired a couple of companies on the cheap, but ended up as a bit of a hodgepodge and lost the interest of the market that was looking for a pure play. Cash flows are relatively safe but there is nothing there to cause it to rebound quickly.

HOLD

2 aspects to their business. Power generation and seniors’ housing. Both sides are pretty stable. Valuations are rising on the seniors’ housing side.

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Capstone Infrastructure (CSE.TO)