Algonquin Power (Algonquin Power Stock Quote, Chart, News TSX:AQN) has been a solid if unspectacular performer over the last 12 months.
And while investors may be not be impressed by the meagre share price appreciation, the stock remains one of the safest in the Utilities space, says Rob McConnachie of Cypress Capital Management, who calls it a great core holding.
Algonquin has posted strong gains this year, climbing 33 per cent for 2019, all the while keeping investors happy with a handsome dividend (the yield is currently at 4.1 per cent).
Algonquin, which has $10 billion in assets in energy generation, transmission and distribution, has a portfolio of contracted wind, solar and hydroelectric generating facilities internationally.
The company posted mixed results in its latest quarterly report, its second quarter 2019, delivered in early August. The Q2 featured a six per cent drop in revenue compared to a year earlier while the company improved its adjusted EBITDA by 18 per cent year-over-year, beating the consensus estimate.
The company is in the middle of a $7.5-billion capital investment plan which will carry it through 2023 and hopefully drive growth going forward. Management has guided for average annual EBITDA growth of between 12 and 16 per cent over the next four years -that’s along with affirming its devotion to dividend growth at about ten per cent a year through 2021.
“We are pleased to report solid operating results for the second quarter of 2019 while at the same time making significant progress on the execution of our five year $7.5 billion capital plan,” said CEO Ian Robertson in the August 8 quarterly press release.
“We have received the final certificates allowing 600 MW of new wind generation to be built in the U.S. Midwest as we transition away from coal generation. This is part of our ‘Greening the Fleet’ initiative which continues to demonstrate our ongoing commitment to sustainability.”
The spectre of an economic downturn on the horizon can cause investors to pay more attention to the utilities space, said to be recession-proof due to relatively unwavering customer needs. But even within Utilities, AQN stands out, not only for its focus on renewable energy and its distance from the oil sector but for its security during a recession, according to McConnachie, who spoke about Algonquin on BNN Bloomberg on Monday.
“(Algonquin Power) a great core holding for the long term for clients…”
“Algonquin is a core holding of ours and it’s probably the largest of the utility holdings within our pool,” says McConnachie. “It’s considered in the analyst community as the safest utility. We think that there are others that might have more upside potential but they’re not as safe. It’s a great core holding for the long term for clients.”
Algonquin’s second quarter posted a top line of $343.6 million and adjusted EBITDA of $189.8 million with adjusted EPS of $0.11 per share. During the quarter, the company announced an agreement to acquire the Bermuda Electric Light Company, the sole provider of electricity generation, transmission and distribution on Bermuda, for $365 million.
Management expects the acquisition, expected to close in late 2019, will be immediately accretive to the company’s 2020 earnings per share.