First Avenue Investment CEO Kash Pashootan says there’s a lot to like about Algonquin Power & Utilities (Quote, Chart TSX, NYSE:AQN), which produced an improved topline in its recent second quarter earnings.
Earlier this month, Algonquin Power reported its Q2/18 and year-to-date financials, which featured revenue of $366.2 million, a year-over-year increase of nine percent, with Adjusted EBITDA of $160.3 million, also a nine per cent uptick from last Q2. (All figures in US dollars unless otherwise noted.)
Those numbers helped to push up Algonquin’s share price, which hit a six-month high of C$13.64 last week. But the renewable energy company is still down for the year, having been impacted by the rising interest rate environment which has caused investors to shift away from utilities.
That selloff makes for a buying opportunity, says Pahootan, who argues the stock is trading at an attractive valuation.
“Year-to-date, it’s down about five per cent, and that’s really no surprise for any interest-sensitive name that’s out there today,” says Pashootan, to BNN Bloomberg. “When you look at the name on a go-forward basis, Algonquin has a well-balanced business in the sense that about half of their revenues come from the generation — that’s where they produce it and sell it to the grid — and the other half comes roughly from the distribution side where they’re selling right to the retail client. So, there’s some diversification from that perspective.”
“In their latest quarter numbers, they did have a nice lift from the interest that they have in Atlantica Yield. That helped their topline revenue,” he says.
In March, Algonquin announced the acquisition of a 25 per cent interest in Atlantica, which owns and operates renewable energy assets in North and South America, Spain, Algeria and South Africa. Algonquin’s CEO, Ian Robertson, called the acquisition “a significant milestone” for his company. Algonquin has since announced its intention to purchase an additional 16.5 equity interest in Atlantica Yield.
“I think the opportunity here, and this extends to more than just Algonquin, given that it has had a recent sell-off, given that the utilities all under pressure, [it has] a reasonable valuation,” says Pashootan. “It’s trading at about 15x, which is arguably some of the lowest P/E for Algonquin in recent times.”