Algonquin Power still a buy despite mixed Q2, says Cantor’s Safrance

Algonquin Power’s (Algonquin Power Stock Quote, Chart, News: TSX:AQN) recent Q2 results were a mixed bag, but the company is still a buy, says Cantor Fitzgerald analyst John Safrance.

Last week, Algonquin announced its Q2, 2013 results. The company posted adjusted earnings of $15.4-million on revenue of $148.8-million, a significant bump over the $58.7-million topline the company posted in last year’s Q2.

CEO Ian Robertson said the company was on the upswing.

“We continue to see year-over-year positive contributions from our recent growth in both the power and utilities businesses,” he said. “The second quarter results show that our strategy has resulted in significant contribution to earnings and cash flows, affirming our growth trajectory. We are well positioned to build out our power development projects and secure accretive utility acquisitions, while maximizing the value of organic investment opportunities in the existing portfolio. These activities are the basis of the upward growth profile of our earnings and cash flows.”

Safrance says that Algonquin’s revenue can be affected by unpredictable commodity pass-through costs, and was lower than he expected. The company’s EBITDA numbers, however, beat his estimate.

The Cantor analyst notes that management spent some time on the conference call following the results talking about the impact benchmark interest rates have on the power and utilities business. His takeaway from this rundown is that the company is generally protected as it can pass increases through to the consumer on the regulated utilities business, and higher capital costs can be passed through as new rate case adjustments. On the power generation side, most of the company’s assets are indexed with a CPI component, so interest rates are correlated with inflation.

In a research update to clients following the Q2 numbers, Safrance maintained his BUY rating on Algonquin Power, but lowered his one-year target to $8.75, down twenty-five cents from his previous $9.00 target.

At press time, shares of Algonquin Power were up 1% to $6.705.