atco

CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $37 and CU.X [class B voting] $37; Income Portfolio, Utilities sector; Shares outstanding: 260.1 million; Market cap: $9.6 billion; Price-to-sales ratio: 2.8; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.canadianutilities.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. (see page 14) owns 53.1% of the company.

In the three months ended September 30, 2013, Canadian Utilities earned $127 million, up 8.5% from $117 million a year earlier. Earnings per share rose 4.8%, to $0.44 from $0.42, on more shares outstanding.

Without unusual items, mainly deferred payments from or refunds paid to customers, earnings would have risen 6.7%. Revenue gained 5.7%, to $755 million from $714 million, mainly due to higher power rates.
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ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $47 and ACO.Y [class II voting] $47; Income Portfolio, Utilities sector; Shares outstanding: 115.2 million; Market cap: $5.4 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.atco.com) holds 53.1% of Canadian Utilities (see page 15). 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 the three months ended September 30, 2013, ATCO’s revenue rose 3.5% to $1.02 billion from $981.0 million a year earlier. That’s mainly because higher power rates in Alberta increased Canadian Utilities’ contribution. The structures division’s revenue fell 2.5% after it completed three contracts to build temporary housing and offices at an Australian liquefied natural gas (LNG) project in late 2012 and early 2013.

Earnings jumped 63.0%, to $132 million, or $1.15 a share, from $81 million, or $0.71. Without unusual items, earnings rose 6.3%.
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Holding companies give you an easy way to buy a variety of businesses at a discount. As well, their structure makes it easy for them to unlock hidden value by selling undervalued subsidiaries.

For example, Maple Leaf Foods has risen sharply since it said it would sell Canada Bread....

BLACKBERRY LTD., $9.08, Toronto symbol BB, fell 16% on Friday after the company announced that it will cut 40% of its workforce due to slow demand for its new BlackBerry 10 smartphones. In its fiscal 2014 second quarter, which ended August 31, 2013, BlackBerry sold 3.7 million phones. That’s down from 7.4 million phones a year earlier. BlackBerry will also write down the value of its unsold phones. As a result, it expects to report a loss of between $950 million, or $1.81 a share, and $995 million, or $1.90 a share, in the second quarter (all amounts except share price in U.S. dollars). If you exclude unusual items, it will still lose between $0.47 and $0.51 a share....

iShares S&P/TSX Capped Utilities Fund, $18.29, symbol XUT on Toronto (Shares outstanding: 5.6 million; Market cap: $102.4 million; ca.ishares.com), holds the 11 stocks in the S&P/TSX Capped Utilities Index. The ETF’s MER is 0.60%, and it yields 4.3%. The fund’s holdings are Fortis Inc., 21.0%; Canadian Utilities, 14.9%; Emera, 14.9%; TransAlta Corp., 13.2%; ATCO, 11.6%; Superior Plus Corp., 5.3%; Capital Power Corp., 5.0%; Northland Power, 4.7%; Algonquin Power & Utilities Corp., 3.8%; and Just Energy Group, 3.7%. The weight of any one company is capped at 25% of the index’s market capitalization. As a result, every three months, if the market cap of any given stock has risen above 25% of the total market cap of all the stocks in the index, the fund will sell shares of that stock to bring its weight down to the 25% cap level. The fund then uses the sale proceeds to buy other stocks in the index on a proportional basis....

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.)
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CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $36 and CU.X [class B voting] $36; Income Portfolio, Utilities sector; Shares outstanding: 258.2 million; Market cap: $9.3 billion; Price-to-sales ratio: 3.2; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www. canadianutilities.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. (see right) owns 52.9% of the company.

In the quarter ended March 31, 2013, Canadian Utilities earned $183 million, down 3.7% from $190 million a year earlier. Earnings per share fell 4.2%, to $0.68 from $0.71. (All per-share amounts adjusted for a 2-for-1 stock split in May 2013.)

Without unusual items, mainly deferred payments from or refunds paid to customers, earnings would have risen 3.4%. Revenue gained 8.0%, to $876 million from $811 million. Colder-than-normal winter weather increased demand for electricity and natural gas. Higher rates in Australia also contributed to the gain.
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As is the case with TransCanada (see page 71), fears of higher interest rates have hurt these four power utilities. However, their high quality, mostly regulated operations will keep giving them plenty of steady cash flows for dividends.

CANADIAN UTILITIES LTD....

MANITOBA TELECOM SERVICES INC., $33.93, Toronto symbol MBT, rose 6% today after it agreed to sell its Allstream subsidiary to Accelero Capital Holdings, a private firm controlled by Egyptian billionaire Naguib Sawiris. In 2004, the company paid $1.6 billion for Allstream, which provides integrated telephone, Internet and other communication services to over 50,000 businesses across Canada. The sale price is $520 million, which is equal to 23% of Manitoba Telecom’s $2.3-billion market cap. If you disregard various closing costs, Manitoba Telecom will receive $405 million. Assuming regulators approve, the company expects to complete the sale in the second half of 2013....

Low interest rates continue to spur demand for dividend-paying stocks, such as these two electrical utilities. In the latest issue of The Successful Investor we examine the outlook for each of these Canadian dividend stocks. Both of these companies plan to split their shares on a 2-for-1 basis in May 2013. CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] and CU.X [class B voting]; www.canadianutilities.com) distributes electricity and natural gas in Alberta. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. (see below) owns 52.9% of the company....