Opinions
Jason Mann
Transalta Renewables
RNW-T
COMMENT
Jul 06, 2018
Stock price when the opinion was issued
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However its cash-available-for-distribution outlook was down 9.5%. Shares immediately plunged 15% from $14.35, and have more or less hovered around $12 this year. Sure, RNW pays a 7.88% dividend, but at a nosebleed 335.7% payout ratio. Maybe a nimble trader can jump in and out of this and gain a few dollars, but all others should avoid. Read Budget winners for our full analysis.
A yield company, and they've all been hurt by interest rate increases. Looked like it had really good growth until December, when growth impetus shifted to the parent, TA. Good 7.5% dividend, especially if rates don't go up as much. Quite cheap at 15x, still decent growth rate. More value in TA, but RNW is still good.
All renewables took off on hype, but then collapsed. The renewable business will continue to grow. Remember that, while renewables are important to the energy complex, they're not yet economically efficient. For example, when there's no wind, you need backup. Right time to buy.
RNW is a yield proxy, and those have fallen, with decent yield and nice EPS growth. Parent company is taking it over, pending approval. The real question is what do you do with TA? Transaction looks slightly dilutive. Long term, bigger flow in a simplified structure, which could lead to a higher valuation.
Backdrop for TA is really supportive, solid balance sheet, compelling free cashflow yield of 15%. Could be synergies. He likes TA post-closing.
It fell with the other utilities but has not bounced back as much as the others. He is neutral on it. He likes its stability and its valuation characteristics but it is not showing good price momentum.. The dividend yield is high, the payout ratio is not excessive and the 15x Price to EBITDA is a little cheaper than its peers, so it wouldn’t take a whole lot of price improvement for him to recommend it. He needs more confidence that disappointed sellers have sold their shares and so will not sell the stock off when it rises more