Atlantic Power is on the Comeback trial

 

Atlantic Power released it's fourth quarter and annual report on March7,2016.It had few surprises in it.Atlantic Power (ATP) has made quite a few changes since the dramatic drop in the price of it's stock in 2012 and 2013.A few blogs on this topic have been covered in several Workathon blogs.So it is not surprising that it tells shareholders that it has reduced $885 million from long term debt and reduced overhead costs from $54 million in 2014 to $32 million in 2015 and expects to reduce further to $27 million in 2016.It has also invested $22 million in optimization projects in 2015.This means that they have increased their efficiency.This resulted in cash flows of $6 million in 2015 and expects $10 million in 2016.This is after their capital program expenditures and dividend payments.They also modified the Morris energy services and got an 11 year extension of the contract.Lastly they have a normal course issuer bid to buy back 10% of common and convertible debenture shares.These improvements have had an impact as S and P upgraded their credit rating from B to B (plus) and Moody's upgraded from B2 to B1.Consequently management purchased 500, 000 shares at $1.77 per share and another 1 million at $2.31 per share. This shows the confidence management has in their company.This helped to send ATP back towards the present $3.00 level.

Operational Details  

ATP had increased operational revenues in 2015 over 2014 but it still experienced a project loss of $41 million compared to $39 million in 2014.It also had project adjusted EBITDA of $209 million versus $229 million in 2014.Project adjusted EBITDA is a term that Atlantic Power uses because it does not own 100% of all it's projects so it prorates it's EBITDA.This way it gains operational experience of a project while not completely owning it.This is an excellent management technique as ATP will gradually increase it's ownership in projects not completely owned.

 Atlantic Power told shareholders that it has reduced it's debt and so has reduced interest charges ;this increased EBITDA and also adjusted cash flows in 2015.So that adjusted cash flows were $105 million in 2015 compared to $92 million in 2014.

Conclusion

Atlantic Power has made definite gains in it's operational and financial structure in 2015.With it's reduced overhead and capital costs it will be able to reduce debt once again in 2016.Consequently this blog expects an increase in adjusted cash flows and EBITDA in 2016.It has also freed up some more cash flow by eliminating it's dividend.This should have little long tern effect on the stock price because of all the structural changes it has made.Also the dividend was only at $.12 annually.It is not likely that many investors were counting on a substantial yield here.But now ATP will have to count on earning a little more growth because of the dividend elimination.That aside ATP should be able to scale up to the $3.50 area by mid-year especially if it is able to meet or surpass it's guidance for EBITDA for 2016.But with a good next quarter and the their  new credit rating they may be able to hit $3.75 a share as many investors are relieved that their two class action law suits in Ontario have been dismissed now.