Capstone Infrastructure has “exceptional upside” says Cantor Fitzgerald

Cantor Fitzgerald analyst John Safrance says Capstone Infrastructure has “exceptional upside” should clarity over its 156 MW gas cogeneration plant Cardinal emerge, and limited downside risk because he believes the market is already pricing in the worst case scenario for Cardinal.

On Thursday, after market close, Capstone Infrastructure Corporation (TSX:CSE) will report its Q4 and fiscal 2012 financial results.

The company is coming off a Q3 in which it doubled revenue, year over year, from $40.36-million in Q3 2011, to a topline of $84.95-million in Q3, 2012. The company also tidily reversed its net income from a loss of $11.78-million to a gain of $11.81-million.

In his message to shareholders following the quarter, CEO Michael Bernstein said he was pleased with the results, and that the company would continue to take steps to reduce risk and increase the stability of its cash flow. He said a continuing priority is to complete a new contract for its 156 MW gas cogeneration plant at Cardinal, Ontario which has a PP that is set to expire at the end of 2014.

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“We have an ongoing dialogue with the Ontario Power Authority,” said Bernstein, “…along with other key government ministries, and we are striving to find the optimal balance between value for our industrial partner, value for Ontario ratepayers and value for our shareholders….however with the current political situation in Ontario, it is unclear whether the government will be able to finalize a new contract by the end of the year.”

Cantor Fitzgerald analyst John Safrance says Cardinal comprises nearly half his fiscal 2013 earnings forecast for Capstone. He expects Capstone will announce a new contract in the fall of this year that will see the facility will convert from a base-load configuration to a peaking facility. Safrance says Capstone has “exceptional upside” should clarity over Cardinal emerge, and limited downside risk because he believes the market is already pricing in the worst case scenario for Cardinal. In a research update to clients this morning, Safrance reiterated his BUY recommendation and $5 target on Capstone Infrastructure Corporation.

Safrance notes that between existing cash levels and expected retained cash flow over the next two years, Capstone will have about $50-million to deploy into acquisitions or organic development, meaning the company will have options to sustain its dividend should the worst case scenario play out on Cardinal.

Shares of Capstone Infrastructure Corporation closed today up .2% to $4.25.

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