ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $54 and ACO.Y [class II voting] $54; Income Portfolio, Utilities sector; Shares outstanding: 115.1 million; Market cap: $6.2 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.6%; TSINetwork Rating: Above Average; www.atco.com) holds 53.1% of Canadian Utilities (see left). It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction and energy-exploration firms; Canadian Utilities owns the remaining 24.5%.
In 2013, ATCO’s revenue rose 8.6% to $4.4 billion from $4.0 billion in 2012. That’s mainly because Canadian Utilities’ new power lines boosted its contribution. The structures division’s revenue rose just 0.4%, partly because ATCO sold its 50% stake in a South American joint venture for $124 million. It also completed three large projects in Australia in 2012 and early 2013.
Earnings rose 13.0%, to $418 million, or $3.62 a share, from $370 million, or $3.20. Without unusual items, earnings rose 5.4%.
ATCO’s main appeal is its holding company discount. Based on current prices, you can buy an ATCO share for $54 and get roughly $49.50 worth of Canadian Utilities. That means you get ATCO’s structures business, which provides around 25% of its revenue and earnings, for just $4.50.
This discount is also why ATCO has a lower p/e ratio than Canadian Utilities: it trades at 15.1 times the $3.57 a share that it will likely earn 2014. ATCO’s $0.86 dividend yields 1.6%.
The class I (X) non-voting shares are more liquid than the class II (Y) voting shares.
ATCO class I stock is a buy.
