Transalta Corp (TA.TO)

(Market Call Minute.) Having trouble on the power side in Calgary. You can find something safer. Hold or sell.

Not a big fan at this time. Finds it expensive with very low growth. Just doesn’t see what is going to turn the growth on this company going forward. Pays enough of its earnings out in dividends so it can’t increase the yield.

Hate being in the middle but she also loves to hate it. Has played it from the short side in the past. She recommends playing this way but she is not shorting it right now. There is always something going wrong – missed priced contracts, assets not performing. Every year there is a really, really bad quarter and the rest are not right. It is unlikely they are going to have any great news except that they intend to maintain the dividend. It is debatable they can do it long term but ok will do in the short term. If they cut he dividend then you should cover. Sees better guidance in other sectors

Have ratty assets. A lot of old, coal-fired power plants. These plants require a lot of maintenance. As emissions standards get tougher and tougher, it is harder and harder for them to meet those standards. There are a number of quarters where they don't earn their dividends. 7.5% dividend yield.

Weak capital allocation. Return declines and eventually dividend declines. He would need to see a change in board and a possibly the management. They have not allocated capital well. Written down assets after paying too much for acquisitions.

6.4% Bond Maturing Nov 18/19. Been put a rating alert with threat of a possible downgrade. Doesn’t think it’s a big threat to the debt of the company. Company had challenges this year and an adverse ruling having to pay Trans Canada (TRP-T) some serious money, but still thinks the company would like to retain its investment grade status. Have adequate lines of credit to protect themselves.

Model price of $11.05, 29% decrease. Some support at $13.30 and he would sell here. It is a broken utility.