atco

ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $34 and ACO.Y [class II voting] $34; Income Portfolio, Utilities sector; Shares outstanding: 115.1 million; Market cap: $3.9 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.atco.com) operates power plants in Western Canada, the U.K. and Australia. It also builds temporary buildings for construction, mining and energy-exploration firms. Weak commodity prices are hurting demand for electricity and shelters, particularly in Alberta. In response, ATCO is cutting 4% of its global workforce. A new carbon tax in Alberta has also weighed on ATCO’s stock. However, most of the company’s power plants burn natural gas, not coal, which should help reduce the impact of the tax. In addition, ATCO is looking at replacing some of its current facilities with a new hydroelectric plant in northern Alberta....

With $5.8-billion worth of investment planned in Alberta and Mexico, blue chip stock Canadian Utilities is poised to generate new profits.

LINAMAR CORP., $70.26, Toronto symbol LNR, has offered to buy 100% of Montupet SA, a French maker of aluminum car parts with plants in Europe, North America and Asia. The company will pay $1.16 billion for Montupet’s shares and will assume $97.5 million of its debt. The deal’s total value—$1.25 billion—is equal to 27% of Linamar’s $4.6-billion market cap (the value of all outstanding shares). Linamar will borrow the cash it needs for this purchase, which will increase its long-term debt from $581.3 million (as of June 30, 2015) to around $1.8 billion. That’s a high, but still manageable, 39% of Linamar’s market cap. The new operations will immediately add to the company’s cash flow and earnings, helping it pay down the extra debt....

Canadian Utilities and its parent company, ATCO (see box), are both down 10% since the start of 2015. That’s mainly because lower oil prices have prompted companies that produce and explore for crude to put off new projects, hurting electricity demand in Alberta. However, both firms are in the midst of expansions that will spur their earnings as oil prices recover. That will give them more room to increase their dividends. CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $37 and CU.X [class B voting] $37; Income Portfolio, Utilities sector; Shares outstanding: 265.2 million; Market cap: $9.8 billion; Price-to-sales ratio: 2.9; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.canadian utilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. owns 53.2% of the company....

ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $40 and ACO.Y [class II voting] $40; Income Portfolio, Utilities sector; Shares outstanding: 115.1 million; Market cap: $4.6 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.atco.com) holds 53.2% of Canadian Utilities and 75.5% of ATCO Structures & Logistics, which makes temporary buildings for construction, mining and energy-exploration firms. Canadian Utilities owns the other 24.5%. In the three months ended June 30, 2015, ATCO earned $8 million, or $0.06 a share, down 87.9% from $66 million, or $0.57. Revenue declined 15.0%, to $947 million from $1.1 billion. Excluding unusual items, earnings were flat at $57 million. Based on current prices, you can buy an ATCO share for $40 and get roughly $45 worth of Canadian Utilities. You might say this means you get the structures business, which provides around 20% of ATCO’s earnings, for free....

ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $40 and ACO.Y [class II voting] $40; Income Portfolio, Utilities sector; Shares outstanding: 115.1 million; Market cap: $4.6 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.atco.com) holds 53.2% of Canadian Utilities and 75.5% of ATCO Structures & Logistics, which makes temporary buildings for construction, mining and energy-exploration firms. Canadian Utilities owns the other 24.5%.

< p>In the three months ended June 30, 2015, ATCO earned $8 million, or $0.06 a share, down 87.9% from $66 million, or $0.57. Revenue declined 15.0%, to $947 million from $1.1 billion. < p>Excluding unusual items, earnings were flat at $57 million. Based on current prices, you can buy an ATCO share for $40 and get roughly $45 worth of Canadian Utilities. You might say this means you get the structures business, which provides around 20% of ATCO’s earnings, for free....

CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $37 and CU.X [class B voting] $37; Income Portfolio, Utilities sector; Shares outstanding: 265.2 million; Market cap: $9.8 billion; Price-to-sales ratio: 2.9; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.canadian utilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. owns 53.2% of the company.Between 2015 and 2017, Canadian Utilities plans to spend $5.8 billion on its utility operations, including building a 485- kilometre power line in eastern Alberta. This $1.8-billion project should start up by the end of 2015.

< p>Other projects include a new gas pipeline and power plant in Mexico and four underground gas-storage facilities in Alberta. Meanwhile, lower gas prices and demand cut Canadian Utilities’ revenue by 8.9% in the three months ended June 30, 2015, to $780 million from $856 million a year earlier. < p>Overall earnings dropped 62.6%, to $43 million from $115 million, while per-share profits declined 69.2%, to $0.12 from $0.39, on more shares outstanding....

ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $44 and ACO.Y [class II voting] $44; Income Portfolio, Utilities sector; Shares outstanding: 115.1 million; Market cap: $5.1 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.atco.com) holds 53.2% of Canadian Utilities (see page 53). The company also owns 75.5% of ATCO Structures & Logistics, which makes temporary buildings for construction, mining and energy exploration firms; Canadian Utilities owns the other 24.5%. In the three months ended March 31, 2015, the company earned $94 million, or $0.82 a share. That’s down 26.0% from $127 million, or $1.10. Revenue declined by 12.6%, to $1.1 billion from $1.2 billion.

Lower earnings at Canadian Utilities hurt ATCO’s profits. As well, the structures business completed two big contracts in late 2014. As a result, this division’s earnings fell by $11 million in the latest quarter.

However, ATCO recently started working on a $125-million contract to build worker shelters at the Wheatstone liquefied natural gas project in Western Australia. It expects to finish these buildings by the end of the year.

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CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $37 and CU.X [class B voting] $37; Income Portfolio, Utilities sector; Shares outstanding: 264.5 million; Market cap: $9.8 billion; Price-to-sales ratio: 2.8; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.canadian utilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. owns 53.2% of the company.

Canadian Utilities plans to spend $5.8 billion on upgrades between 2015 and 2017. It will devote $5.1 billion of that to its regulated operations, including $1.2 billion to make Alberta’s power grid more reliable.

The remaining $700 million will go to unregulated businesses, including $500 million for new power lines in the Fort McMurray area. The company owns 80% of a joint venture that will build this project. Quanta Services (New York symbol PWR) will own the remaining 20%. Meanwhile, Canadian Utilities earned $174 million, or $0.61 a share, in the three months ended March 31, 2015.

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In addition to TransCanada (see page 51), we like these three pipeline operators’ prospects. All of them are investing in projects that will spur their cash flows—and dividends—for years to come. ENBRIDGE INC. $61 (Toronto symbol ENB; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 855.0 million; Market cap: $52.2 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.enbridge.com) gets 90% of its revenue from pipelines that pump oil and natural gas from Western Canada to Eastern Canada and the U.S. The remaining 10% mainly comes from distributing gas to 2.1 million consumers in Ontario, Quebec, New Brunswick and New York State. The company plans to spend $44 billion on new pipelines and expansions between 2014 and 2018. It completed $9.8 billion worth of that total in 2014 and expects to finish another $8.7 billion worth this year. Enbridge has already secured shipping contracts for $34 billion worth of these projects, which cuts its risk....