AT - Atlantic Power Corp

[dr.malone]

Cardboard,

 

I agree we need something more. Why not just pay down $40 mill or so of debt right now rather than talking about doing it by year end. This alone would save close to $1 mill in interest expense. The settlement they got should almost be treated as "found money" so spend it now to reduce debt since that is what he keeps talking about!

[SnarkyPuppy]

I'm out of this, I didn't make/lose anything here. Basically, if ppa's renew at 1/3 (mgmt's expectation and evident since they made this clear) current ebitda (those that will renew), it becomes a more acute capital allocation situation.

 

While I still believe downside is probably capped, I'm finding better upside cases elsewhere. Hopefully I'm wrong and everyone does well here.

 

I'll monitor this one for changes in ppa renewal expectations/changes and share price changes.

 

I like that they spent a couple m on the a's at 11% roi's inclusive of tax savings.

 

What caused such a drastic change in your sentiment?  At one point you held a 20% position and another point 10%?  Seems management has continued to execute exactly according to expectations.  I still think the commons are a risky (but asymmetrical) bet, but the preferreds seems to have little chance of permerant loss of capital, yield in 7-8%, and have 40-60% appreciation likely over next 4/5 years.  Where are you beating this to sell a 10% position, or what changed?

[flesh]

Good and fair questions. Simply put, when I run the numbers, excluding the ppa's that will likely expire worthless and the rest at 1/3 current run rate, it leaves too small a margin of error. Mgmt is awesome, however, I don't like relying on things that qualitative, I don't believe I know enough, it's not a small hurdle. It's not hard to make a case for a reasonable return from here. Until proven otherwise, I'll continue to be unreasonable.  That combined with the fact that I tend to concentrate in my best ideas especially in a market where there are few (top three are 60% of portfolio), there isn't  room for AT.

 

If it was true that AT could renew at 50% current run rates, it would be a 20% position. I didn't know, I believed I was being conservative planning on 50% of current run rates for renewals, mgmt informed me I was wrong, some good things happened which caused me to slowly vs quickly  change my mind. Also, another company I've been following for a few years and owned in the past, came down to my buy threshold.

 

Being intellectually honest here, that's all, warts and all. If anyone has a pill that will cause you too know when you've done 100% of the work before you invest a penny, I'm a buyer.

[Cardboard]

They renewed San Diego at over 1/3 which was a tough situation communicated in advance. So this is a +.

 

On the call today they talked about some M&A rumors and they mentioned in their material that they would not entertain selling their hydro assets at even 14 times EBITDA or a value of $616 million. How do you replicate an hydro dam on the Hudson River? What is it? Only solar and wind are cool now?

 

Piedmont was also a troubled project and is now generating $9.5 million in EBITDA and trending towards $10.

 

In terms of forecast, they are calling for $550 to $600 million in cash flow over the next 5 years starting in 2018. So you have solid cash flows, solid asset values and liquidity climbing on a very cheap valuation with a management team that has never did something dumb.

 

Cardboard

 

 

[awindenberger]

They renewed San Diego at over 1/3 which was a tough situation communicated in advance. So this is a +.

 

On the call today they talked about some M&A rumors and they mentioned in their material that they would not entertain selling their hydro assets at even 14 times EBITDA or a value of $616 million. How do you replicate an hydro dam on the Hudson River? What is it? Only solar and wind are cool now?

 

Piedmont was also a troubled project and is now generating $9.5 million in EBITDA and trending towards $10.

 

In terms of forecast, they are calling for $550 to $600 million in cash flow over the next 5 years starting in 2018. So you have solid cash flows, solid asset values and liquidity climbing on a very cheap valuation with a management team that has never did something dumb.

 

Cardboard

 

I'm with Cardboard. They had communicated how challenging the San Diego renewals would be, so really any EBITDA is a positive in my book there. I'm slowly but surely taking a bigger position in AT. The space has been pummeled and you have a management team that is as top-notch as any I've seen. They've been making lemonade out of lemons for multiple years now and I believe with a couple more years of debt reduction the market is suddenly going to wake up and rerate the stock.

[mrholty]

 

 

On the call today they talked about some M&A rumors and they mentioned in their material that they would not entertain selling their hydro assets at even 14 times EBITDA or a value of $616 million. How do you replicate an hydro dam on the Hudson River? What is it? Only solar and wind are cool now?

 

Not related to AT but a few years back I started looking into the idea of buying some old hydro plants and getting them working etc.  Ran into a whole cool culture and I found out I was about 5-10 years to late.  Met a guy who bought 30 units in Wisconsin where I am from buying them for $1 to 2x EBIT.  Created a portfolio and sold the majority of it to a buyer at 8x.  Deals were going for 10-15x. 

 

Strange thing is that for the small hydro dams there are now environmentalists who think they are more damaging than if there were not there.

[flesh]

Allowing for hydro being valued at 616m, ppa's renewing at 1/3, adjusting my model for greater than anticipated cash flow from recent naval ppa's, at todays prices.... I'm getting around a 10% cagr, next ten years. Not bad. If I'm right, aside from some preferred's at current prices and perhaps some internal plant investments, they should be putting more cash into buybacks as it's the best bang for the buck. If they aren't buying back, to some degree considering their cash pile in context of current debt requirements, it gives me pause. They may be waiting until the coast is clear on next two year ppa's or I may be missing something of course.

 

Under various circumstances, this could get really interesting.

[SnarkyPuppy]

Allowing for hydro being valued at 616m, ppa's renewing at 1/3, adjusting my model for greater than anticipated cash flow from recent naval ppa's, at todays prices.... I'm getting around a 10% cagr, next ten years. Not bad. If I'm right, aside from some preferred's at current prices and perhaps some internal plant investments, they should be putting more cash into buybacks as it's the best bang for the buck. If they aren't buying back, to some degree considering their cash pile in context of current debt requirements, it gives me pause. They may be waiting until the coast is clear on next two year ppa's or I may be missing something of course.

 

Under various circumstances, this could get really interesting.

 

My guess is they feel the commons are undervalued (they've said multiple times, have bought back sizable amounts, have made open market purchases themselves), but there is value in taking out required reductions in free cash flow (preferred dividends being one) given the low margin of error you described in one of your earlier posts. 

 

The preferred purchase was relatively small and still adds to intrinsic value.  Maybe not as much as the commons likely would, but it adds to intrinsic value in a less risky way by reducing pref dividend payments which they probably want to avoid having to pause on. 

 

Overall, wouldn't read too much into it.  Moore seems to be continually making solid decisions, I doubt he did this without considering value in the same way we consider value. 

[Cardboard]

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aATP-2499655&symbol=ATP&region=C

 

I consider this bad news. While I agree that the impact on the company is not significant, they seem to sugarcoat it which I don`t like.

 

Cardboard

[petec]

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aATP-2499655&symbol=ATP&region=C

 

I consider this bad news. While I agree that the impact on the company is not significant, they seem to sugarcoat it which I don`t like.

 

Cardboard

 

I don't read their comments as sugar-coating - they say they are disappointed.  What intrigues me is the implication that they have a lot of investment opportunities.

[StubbleJumper]

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aATP-2499655&symbol=ATP&region=C

 

I consider this bad news. While I agree that the impact on the company is not significant, they seem to sugarcoat it which I don`t like.

 

Cardboard

 

I don't read their comments as sugar-coating - they say they are disappointed.  What intrigues me is the implication that they have a lot of investment opportunities.

 

 

I agree - I didn't see much that I interpreted as sugar coating.  They have telegraphed the possibility of this situation for quite some time, and it was a key element of the recent contingent PPA that they signed.  IMO, they've done a good job in the past to describe and manage this risk, and today's announcement has done a good job of describing the impact (ie, ignoring discounting, ~$42m of ebitda - $22m of incremental capex = ~$20m hit to enterprise value).  There will be all of the silly accounting charges, but at least we understand the rough cash flow impact.

 

The reference to investment opportunities likely alludes to debt repayment or the repurchase of prefs and common.  After this accounting charge hits the quarterly, maybe the common will fall enough to make an even more attractive re-purchase opportunity.

 

 

SJ

[gokou3]

The pretax unlevered IRR for the $22M capex giving $6M EBITDA over 7 years is 19%.  Quite high comparing to an alternative say buying back AZP.PR.A which they have been doing and is currently yielding 7.7%.

[doc75]

Interesting to see some recent insider open market purchases of B series preferreds, particularly after they've run up so nicely.

 

 

[SafetyinNumbers]

Same director bought significantly more of the C class last week and filed last night.

 

https://www.canadianinsider.com/company?ticker=ATP

 

Makes a lot of sense as they are interconvertible and the 90-day t-bill rate is increasing the current yield on the C's making total return significantly higher to reset than the Bs.

[Cardboard]

I will hold on to my "A"'s since they yield more, have a greater discount to par, the company has bought back some and I suspect that the fact that this director is buying the "B"'s and "C"'s may be an indication that the company intends to buy more "A"'s or to avoid conflict of interest/insider trading.

 

Cardboard

[petec]

The pretax unlevered IRR for the $22M capex giving $6M EBITDA over 7 years is 19%.  Quite high comparing to an alternative say buying back AZP.PR.A which they have been doing and is currently yielding 7.7%.

 

I'd missed them buying back the pref.  Do you have a link?

[Cardboard]

Read the Q2.

[petec]

Thanks.  It's on my pile!

[SafetyinNumbers]

I will hold on to my "A"'s since they yield more, have a greater discount to par, the company has bought back some and I suspect that the fact that this director is buying the "B"'s and "C"'s may be an indication that the company intends to buy more "A"'s or to avoid conflict of interest/insider trading.

 

Cardboard

 

The A's don't actually yield more on a total return basis all being equal. If you add the capital gains to the C's assuming they converge with the Bs on maturity in 2019, they yield almost 2% above the As.

 

The big assumption of course is that the Bs are flat in that analysis.

[mike]

Jus read Q3 slides and prepared remarks.

 

"2017 has been a strong year for both Project Adjusted EBITDA and operating cash flow. However, 2018 EBITDA is likely to be significantly lower."

"In total this represents an approximate $100 million reduction to Project Adjusted EBITDA in 2018 relative to 2017. Note that this figure represents the impact only of expiring PPAs. "

 

2017's Project Adjusted EBITDA is aboout 270M. This means 170M for 2018. The consolidated debt is 872M, Pro Forma for Piedmont Debt Repayment.

[Cardboard]

So?

 

Come on express yourself!

 

Carboard

[Sunrider]

So?

 

Come on express yourself!

 

Carboard

 

... in other words - what’s your point, Mike? I think Cardboard is saying that this has been known given San Diego, etc.

[SnarkyPuppy]

Schedule D out includes the following language:

 

Purpose of Transaction.

Item 4 is hereby amended to add the following:

 

The Reporting Persons have had discussions with the President and Chief Executive Officer of the Issuer regarding alternative uses for the Issuer’s power plants that have expired or expiring power purchase agreements. On January 10, 2018, the Reporting Persons had a telephonic meeting with the President and Chief Executive Officer of the Issuer to discuss plans to develop and supply power to collocated data centers as well as to explore utilizing surplus power for cryptocurrency mining and other blockchain applications. The Reporting Persons also expressed interest in providing co-investment capital for such projects. These discussions are continuing.

 

 

I have to admit - I'm very excited to see Cardboard's reaction to this

[StubbleJumper]

Schedule D out includes the following language:

 

Purpose of Transaction.

Item 4 is hereby amended to add the following:

 

The Reporting Persons have had discussions with the President and Chief Executive Officer of the Issuer regarding alternative uses for the Issuer’s power plants that have expired or expiring power purchase agreements. On January 10, 2018, the Reporting Persons had a telephonic meeting with the President and Chief Executive Officer of the Issuer to discuss plans to develop and supply power to collocated data centers as well as to explore utilizing surplus power for cryptocurrency mining and other blockchain applications. The Reporting Persons also expressed interest in providing co-investment capital for such projects. These discussions are continuing.

 

 

I have to admit - I'm very excited to see Cardboard's reaction to this

 

 

That's hilarious!  They are converting their public image from a stodgy power generating company to a leading edge crypto currency company!  Can we insert the words "Block chain" into the company name?!!?  I like the ring of it, "Atlantic Block Chain and Power Company".

 

This thing is headed for the stratosphere!

 

 

SJ

[doc75]

 

For those not following AT closely:  Management has indicated over the past few quarters that they view industrial users as a growth opportunity because of the disconnect between wholesale power prices and those at the end of the line (i.e. supplying certain industrial users directly rather than supplying power to the grid). It hasn't ever been mentioned specifically, but I have wondered whether data centres would be a viable industrial partner.

 

I don't think you have to worry much about these guys indiscriminately chasing blockchain riches.  They appear to be about as rational as they come.  I suggest reading managements "prepared remarks" from last quarter.  I continue to be impressed by this team..