ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $44 and ACO.Y [class II voting] $44; Income Portfolio, Utilities sector; Shares outstanding: 115.2 million; Market cap: $5.1 billion; Price-to-sales ratio: 1.3; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.atco.com) is a holding company. Its main subsidiary is 52.9%-owned Canadian Utilities (see left). It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction companies and energy exploration firms; Canadian Utilities owns the remaining 24.5%.
In the three months ended March 31, 2013, ATCO’s revenue rose 5.6% to $1.1 billion from $1.0 billion a year earlier. That’s mainly due to the higher contribution from Canadian Utilities. Revenue at its Structures division fell 0.9% after it completed several major projects in 2012.
Earnings fell 1.7%, to $117 million, or $1.01 a share, from $119 million, or $1.03. (All per-share amounts adjusted for a 2-for-1 stock split in May 2013.)
ATCO continues to trade for less than the value of its assets; investors call this a “holding company discount.” Based on current prices, you can buy an ATCO share for $44 and get roughly $42 worth of Canadian Utilities. That means you get ATCO’s non-utility businesses, which provide 30% of its earnings, for just $2.
ATCO trades at 13.3 times the $3.31 a share that it should earn in 2013. It also trades at a low 12.3 times the company’s projected 2014 earnings of $3.59 a share. The $0.75 dividend yields 1.7%.
The class I (X) non-voting shares are more liquid than the class II (Y) voting shares.
ATCO X is a buy.
