Transalta Power needs to downsize
On October30 Transalta Power gave it's Q3 results;it improved it's performance from all it's operations but it was affected by lower power prices in Alberta.It's overall operations delivered 92% availability and it had $212 million EBITDA for the third quarter alone.Smaller utilities,like Just Energy, produce $212 million for the entire year.But Transalta is an established utility.However Transalta's EBITDA and funds flow decreased by $54 million and $29 million respectively in the quarter.While EBITDA and funds flow for nine months was $735 million and $537 million.Transalta(TA) reports that it had a successful preferred share issue of$165 million;this is far cheaper financing than smaller utilities get with short term debt such as revolving lines of credit.
Focussed on Alberta
Transalta Power met it's operating targets but had persistent low power prices in Alberta.TA planned on low prices but it says that prices in Alberta were even lower than expected.Consequently it had to adjust it's guidance for 2014;now it expects that funds flow(FFO) from operations will be $735 to $755 million and EBITDA will be $1.005 to $1.025 billion.
Using third quarter results this blog has calculated EBITDA for each of it's operations for the fourth quarter:
Q3 Q 4
Cdn coal $91m $95m
US coal $12m $10m
gas $ $77m $90m
wind $26m $29m
hydro $26m $20m
------- ------- -------
total $232m $244m
Above is the forecast for Q4 in 2014.This blog expects a slight increase in EBITDA for Canadian coal,and a drop for US coal.Gas will increase because of heating requirements in the winter while wind generation will increase slightly in profitability and hydro is expected to be even less profitable.So my funds flow(FFO) forecast is moved up somewhat to $750 to $760 million for 2014. from TA's forecast of $735 to $755 million.
Non-core Assets
TA has considerably more earnings(EBITDA) than many of the junior utilities.TA is expecting more than $1.005 billion for the whole year.In addition, it has reduced it's debt somewhat and had a successful preferred share issue.But it needs to redeploy some of it's not so profitable assets.Also it appears that they are focussed too much on Alberta. It needs to diversify into other jurisdictions. Figures are not available at this time but it looks like the return on assets from US coal and Canadian hydro assets is quite small.Canadian coal operations are profitable this year but they are cyclical.This blog feels that more investment should be put into solar, wind and gas operations in other jurisdictions where the return is greater.With a few more resources with a higher return on assets TA may soon be in the position where it can finance all of it's future investments internally.This insulates it from stock and debt prices and is an admirable goal.
New Resources
TA has no new resources coming onstream in 2015.It has agreed to build and operate a gas station in South Hedland,Australia.It will be delivering power only in the first half of 2017.The cost should be about $570 million(Australian) and generate 150 MW of power. They also have a joint venture for $178 million to have built a natural gas pipeline to the( Australian) Solomon power station in which TA has a 43% interest.But Transalta does not have new income coming onstream in 2015.Perhaps if they sold off some of their not as profitable resources such as their US coal operations they might have new and increased revenues and income in 2015.They need a small acquisition in the new year.
I use EBITDA to calculate earnings per share.Utilities have significant non-cash expenses and shouldn't be considered in calculating performance of the stock.It is considered that funds flow will not give as accurate a measurment of performance as EBITDA.
Using the low estimate for EBITDA of $975 million and the number of shares at 273 million we calculate that earnings per share will be above $3.55 a share;at $10.75 a share for the price this creates a Price/Earnings ratio of around 3 times earnings.This is a very cheaply priced utility stock with solid assets.This blog expects that if TA meets it's own guidance that the price should move back up to the $15 range by March where it was earlier this year.
total Q4 $230m
total
Focussed on Alberta
Transalta Power met it's operating targets but had persistent low power prices in Alberta.TA planned on low prices but it says that prices in Alberta were even lower than expected.Consequently it had to adjust it's guidance for 2014;now it expects that funds flow(FFO) from operations will be $735 to $755 million and EBITDA will be $1.005 to $1.025 billion.
Using third quarter results this blog has calculated EBITDA for each of it's operations for the fourth quarter:
Q3 Q 4
Cdn coal $91m $95m
US coal $12m $10m
gas $ $77m $90m
wind $26m $29m
hydro $26m $20m
------- ------- -------
total $232m $244m
Above is the forecast for Q4 in 2014.This blog expects a slight increase in EBITDA for Canadian coal,and a drop for US coal.Gas will increase because of heating requirements in the winter while wind generation will increase slightly in profitability and hydro is expected to be even less profitable.So my funds flow(FFO) forecast is moved up somewhat to $750 to $760 million for 2014. from TA's forecast of $735 to $755 million.
Non-core Assets
TA has considerably more earnings(EBITDA) than many of the junior utilities.TA is expecting more than $1.005 billion for the whole year.In addition, it has reduced it's debt somewhat and had a successful preferred share issue.But it needs to redeploy some of it's not so profitable assets.Also it appears that they are focussed too much on Alberta. It needs to diversify into other jurisdictions. Figures are not available at this time but it looks like the return on assets from US coal and Canadian hydro assets is quite small.Canadian coal operations are profitable this year but they are cyclical.This blog feels that more investment should be put into solar, wind and gas operations in other jurisdictions where the return is greater.With a few more resources with a higher return on assets TA may soon be in the position where it can finance all of it's future investments internally.This insulates it from stock and debt prices and is an admirable goal.
New Resources
TA has no new resources coming onstream in 2015.It has agreed to build and operate a gas station in South Hedland,Australia.It will be delivering power only in the first half of 2017.The cost should be about $570 million(Australian) and generate 150 MW of power. They also have a joint venture for $178 million to have built a natural gas pipeline to the( Australian) Solomon power station in which TA has a 43% interest.But Transalta does not have new income coming onstream in 2015.Perhaps if they sold off some of their not as profitable resources such as their US coal operations they might have new and increased revenues and income in 2015.They need a small acquisition in the new year.
I use EBITDA to calculate earnings per share.Utilities have significant non-cash expenses and shouldn't be considered in calculating performance of the stock.It is considered that funds flow will not give as accurate a measurment of performance as EBITDA.
Using the low estimate for EBITDA of $975 million and the number of shares at 273 million we calculate that earnings per share will be above $3.55 a share;at $10.75 a share for the price this creates a Price/Earnings ratio of around 3 times earnings.This is a very cheaply priced utility stock with solid assets.This blog expects that if TA meets it's own guidance that the price should move back up to the $15 range by March where it was earlier this year.
total Q4 $230m
total
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