# Altagas



## mopar44o (Aug 11, 2017)

Was wondering what peoples thoughts are on Altagas and it's dividend. Is it safe? I was thinking of picking up some subscription receipts seeing they were issued at $31. Figured if the WGL accuistion falls through its a little premium while collecting the dividend.


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## AltaRed (Jun 8, 2009)

mopar44o said:


> Was wondering what peoples thoughts are on Altagas and it's dividend. Is it safe? I was thinking of picking up some subscription receipts seeing they were issued at $31. Figured if the WGL accuistion falls through its a little premium while collecting the dividend.


There is an entire thread elsewhere on this company.

Added: But to answer your question, yes, I believe money could be made off the SR if the WGL acquisition does not complete. Be sure to read the prospectus though on how the SRs will be handled if the acquisition does not go through.


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## doctrine (Sep 30, 2011)

The acquisition will almost certainly go through. The subscription receipts will very likely convert to common shares at the market price, i.e. well below $31 at this rate. I like and own ALA but will probably have to be patient for another year. Technically it looks a little negative but its still well above the Aug-Sep lows which is good. The dividend payout ratio is high but projected to decrease to the 60% level by 2020. There will likely be a few quick asset sales once WGL closes.


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## AltaRed (Jun 8, 2009)

I am not as confident, hence I'd suggest the acquisition will "likely" go through. There is thus 'some' speculative opportunity to make circa ~$2/SR. I wouldn't risk doing it though IF I was not prepared to hold the stock otherwise.


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## mopar44o (Aug 11, 2017)

Well I gave the other thread a read over. I tried finding info in the latest q3 report about the receipts process and didn't see it. I may very well be blind. But my understanding of the process is that if it falls through you're given $31.00 a share which is what they were issued at. If it goes through they convert to common stock 1 for 1.

Tell me if I'm wrong (its quite possible as I'm not a seasoned investor) but with a utility company its best to use Operating Cash Flow for the payout ratio? So right now its upwards of 75% or so, which is high for the industry avg. I'm looking at a fairly long term kind of buy it and forget about it play here just letting it drip (not a true drip because its in registered accounts). I like the dividend and with the company stating they plan to increase it seems fairly safe even with the high ratio. Does anyone see a scenario where they may cut it?

I'm leaning towards the receipts because I figure since they trade at a discount to the actual shares, whatever way the deal goes I see you coming out a head a bit. If the deal goes through and they convert to shares of the company you got them at a slight discount (Not much but hey I'll take it) to the actual share price. I'm guessing that if the deal goes through and they convert then stock price will likely dip due to the dilution of the conversion? If the deal falls through it's an instant 10% profit or so with current prices.

Thoughts?
Thanks


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## AltaRed (Jun 8, 2009)

Free cash flow is the more important criteria which is net of needed re-investment in the business such as sustaining capital. ALA is pretty close to the edge in my opinion. Don't know why they even considered raising their dividend recently, bleeding extra cash against the SRs that really was not necessary. That said, most of their cash flow is low risk so it is not as critical as it would be in a lot of businesses.

I have no real opinion on the SRs other than I would tend to agree they are the better thing to invest in today, than the commons, for potentially larger upside.


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## mopar44o (Aug 11, 2017)

Newb question. But do you mind showing me how you calculated the the free cash flow for the payout ratio? I've been dicking around using the explanation on investopedia and the financials without much success coming up with anything.


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## TomB16 (Jun 8, 2014)

As a former owner of a Mopar 440, I am delighted by the irony that a user named "mopar44o" is asking about a gas company. lol!


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## mopar44o (Aug 11, 2017)

Haha. Well that car was one of the best and worse decision I've ever made. Hopefully I can find sometime to work on it again.


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## AltaRed (Jun 8, 2009)

mopar44o said:


> Newb question. But do you mind showing me how you calculated the the free cash flow for the payout ratio? I've been dicking around using the explanation on investopedia and the financials without much success coming up with anything.


I have not calculated it. Just know from what you said that if payout is that high with operating cash flow, it has to be significantly higher with free cash flow (sustaining capex added back in)


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## newfoundlander61 (Feb 6, 2011)

Not sure if this stock was reviewed on BNN or talked about over the last month or so on Market Call.


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## OptsyEagle (Nov 29, 2009)

There are more things to consider when buying the subscription receipts (SR) then just this deal not going through. If that were the case the SR's would trade above the price of the common. Always remember, that although you may be a newbie, the stock market is very sophisticated and these two securities have been trading long enough for the smart guys to figure it all out, and the stock to settle to their rightful values. Your opportunity to gain value between them ended, at most, about 3 hours after the SR's began trading.

So what are these smart people looking at, other then the price the SR shares get if the acquisition does not go through:

1st - ALA was trading around $35 per share before the announcement of this WGL acquisition. Many investors, therefore, will believe that if the acquisition does not go through, the SR will trade up to $31, but the common may trend back to it's pre-acquisition price of around $35.

2nd - Between now and the summer, if something good happens for Altagas, it's common share price will go up, and up and up depending on the nature of the good fortunes. The SR growth will always be impeded by this never ending question of whether the WGL acquisition will go through, since it can never be worth more then $31 if that happens, no matter what happens with Altagas's other businesses.

3rd - I am not 100% sure about this, since the common was a better deal before this question arose in my mind, but I believe the dividend payment for the SR may be classified as interest for tax purposes as opposed to the dividend from ALA, which then gets the dividend tax credit. For someone in almost any tax bracket, this is a big difference if held in a taxable account. You would need to do more research to verify this but that is my understanding.

To me the common shares are the better investment.

As for dividend coverage. I tend to take their net income and add depreciation charges and any other non cash charges and compare that number to their dividend payout. I ignore maintenance capital, because when the payout gets close to or above 100% I get nervous anyway. If it is below that by more then 15% then I assume that extra money should cover the maintenance capital. Let's face it. These companies are always issuing debt and equity for growth and acquisitions. If they issue a little more for routine maintenance it would have small effects and you would probably never notice it.

Anyway, the smart guys have already done these calculations for me, and set their stock prices, so to be honest, I have not done it either. That kind of work, rarely makes you any money.

The most important question you can have, when investing, is what are the smart guys thinking about a stock or industry, that is wrong? That is about the only question you can answer that will make you money with a liquid stock like Altagas. If you don't have a question and answer like that, then invest your money like an index or in an index and forget answering questions.

That is my opinion, anyways.


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## kelaa (Apr 5, 2016)

With respect to the distributions on the subscription receipts, most of the distributions should be return of capital, with minor portion being interest income (as someone with experience of the Transcanada / Columbia Pipelines deal commented). There is no escrow investment Altagas can do that will generate a 6% interest payment. Taxation therefore will be minimally harmful.


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## OptsyEagle (Nov 29, 2009)

Thanks for that. Sounds about right.


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## yyz (Aug 11, 2013)

Why guess it's on the website

"In addition, while the Subscription Receipts remain outstanding, holders will be entitled to receive cash payments ("Dividend Equivalent Payments") per Subscription Receipt that are equal to dividends declared by AltaGas on each Common Share. Such Dividend Equivalent Payments will have the same record date as the related Common Share dividend and will be paid to holders of Subscription Receipts concurrently with the payment date of each such dividend. Dividend Equivalent Payments will be paid first out of any interest on the Escrowed Funds (defined below) and then out of the Escrowed Funds."


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## AltaRed (Jun 8, 2009)

Good assessment by OptsyEagle, but I'd add a few points. One might think that if the WGL acquisition does not go through, ALA commons will trade back up to $35. Maybe, but I have my doubts for 2 main reasons: 1) Management has thrown a curve ball at existing investors with its attempted change in strategy/business plans and leave uncertainty, and 2) the SRs are costing ALA real money, both in terms of the cost of issue, the cost of retraction and the net losses they would have incurred as a result of payment of 'dividends' all this time (not able to earn as much on escrowed funds as they are paying out). 

I agree with others that you must know what you are buying (read the prospectus) if you buy the SRs. The market has priced the SRs at current levels for a reason.


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## Gumball (Dec 22, 2011)

AltaGas got some good play on BNN this morning, anyone finding it attractive at these levels? 

comment was made that ALA share price may increase once WGL closes..

https://www.bnn.ca/video/long-term-buys-in-canadian-telcos-and-utilities~1316683


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## robfordlives (Sep 18, 2014)

At nearly 60X earnings there is zero reason for this to be above $20. Let me guess, someone will talk about ACFFO as being the true valuation metric lol


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## Eder (Feb 16, 2011)

yes, we all know cap ex has nothing to do with a higher PE.


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## kelaa (Apr 5, 2016)

My broker (TD) is restricted for coverage on Altagas. Can anyone provide an analyst summary of today's results from a big bank analyst?


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## AltaRed (Jun 8, 2009)

https://www.altagas.ca/newsroom/new...rong-2017-fourth-quarter-and-year-end-results

Forget analyst coverage. They have no idea what they are talking about. Work through the real numbers yourself and dismiss concepts like 'normalized' data and 'funds from operations'. GAAP data is what one should focus on.


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## OptsyEagle (Nov 29, 2009)

Yes. It would be nice if they would file their report on Sedar so I could take a peak at the actual cash flow report to see what exactly they are backing out of their GAAP earnings/cash flow.

Without one, I do wonder what those investors are looking at that would make them want to unload so many shares at this new 52 week low in the share price.

All I see from what they posted is a rosy picture. High cash flow per share, very high dividend yield with a very low payout ratio (using cash flow), a projected increase in cash flow for the coming year, with a projected increasing dividend going forward. WGL acquisition seems to be on track. Financing seems in place.

If the stock was at a new high, I would say that all that can happen from here is bad stuff but with the stock at a new low, the majority of the bad thing has pretty much happened. Even a cancelation of the WGL deal would probably be a good news story from this level of stock price, but who knows.

Anyway, don't back up the truck, but it doesn't look like that bad of grass to be grazing and nibbling on. Conference call starts in 6 minutes.


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## OptsyEagle (Nov 29, 2009)

OK. So investors did not seem to like the conference call either.

Anyway, I did not hear too much to worry about from the CC so investors must be worrying about something that I have not seen. That is probably not all that difficult to do.

From the CC, it seemed the analysts were concerned about two things:

1) Why ALA reduced guidance from 40% EBITDA growth to 25% to 30% growth. This question was asked about 3 or 4 different ways by different analysts. ALA management basically said that it was due to a number of factors, all small individually but adding up to what it is. The 1st being that they had an outstanding Q4 2017, which makes any number in 2018 look like lower growth. The timing of the WGL acquisition. They moved their estimate from an estimate the middle of Q2 to June 30, 2018. This may not seem significant but the difference between owning WGL for 6 months versus 7 months is a 16.7% difference. The others are things like US tax reform etc. Anyway, I guess 25% to 30% doesn't look as good when you hoped for 40%, but in my opinion, 2 minutes after June 30th of 2018 neither of the numbers would be of any future importance.

2) The 2nd issue that the analysts were harping on was the reason to discontinue the disposition of their California assets. They seem to think that it must have been because ALA was not getting the bids they wanted for the assets. ALA management said that they were having no problem getting the bids for the assets in the amounts they expected. They said their decision was based on the fact that between when the WGL acquisition was announced, where they identified the California assets for sale, and now, those assets have improved so much they feel that shareholders would be better off if they kept those and sold other assets they have in lieu of them.

Anyway, that is about how the call went. If you are interested it is on their website. I still haven't seen a proper cash flow statement but I am sure it will be filed shortly, if it isn't there already.


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## AltaRed (Jun 8, 2009)

It still beats me why they raised the dividend last fall, draining all that cash flow when it wouldn't/couldn't help boost share price. ALA also needs to stop thinking like an old style 'income trust' with its monthly distributions AND its prolific use of non-GAAP measures. Seems so 2009ish. If it wants to be respected in the same leagues as an IPL, etc, then it needs to act accordingly. I think the January 2018 presentation on their website is a better read than massaged short term financials. 

That all said, if/when the acquisition closes, there will be a new perspective on the stock, probably a boost back towards $33.


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## Eder (Feb 16, 2011)

The thing is Alta Gas has previously grown by successfully assimilating acquisitions, if WGL goes thru there is no reason it would not be accreditive . Today is no day to gauge the popularity of the direction ALA is taking or their results.


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## AltaRed (Jun 8, 2009)

I continue to hold, at least until after the WGL acquisition is in place and the stock price goes through the roof ......


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## leeder (Jan 28, 2012)

I'm disappointed with this significant drop myself, but will continue to hold and DRIP because selling now means actual losses. I'm hopeful that we will see a bounce back in the next few days.


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## AltaRed (Jun 8, 2009)

leeder said:


> I'm disappointed with this significant drop myself, but will continue to hold and DRIP because selling now means actual losses. I'm hopeful that we will see a bounce back in the next few days.


I'll wait to at least 3Q18 results to decide. If one has been in this for the past year waiting on closure of the WGL acquisition, might as well play it out the rest of the way. Started to look at their 2017 Annual Report a bit earlier today....but my eyes glazed over after a bit.


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## robfordlives (Sep 18, 2014)

Utilities are completely out of favor so the closer WGL comes to fruition of course the share price will be negatively impacted. This seems quite elementary. Market doesn't care that it is significantly accretive. This is still too rich in valuation on P/E ratio. Some claim this is measure differently because of X, Y, Z and I don't think that is the case. In fact an investment show I listen to recently commented on their high PE ratio and this is a guy in the business 30 years so if he is thinking PE is how this should be valued others must as well. Wake me up when this is under $20


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## AltaRed (Jun 8, 2009)

It is a good point that WGL is one of those nasty interest sensitive utilities. Ultimately means ALA is paying way too much for it in hindsight (well, maybe in foresight too). In which case, ALA management really did destroy what was a very nice Western Canada operation.


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## OptsyEagle (Nov 29, 2009)

AltaRed said:


> It is a good point that WGL is one of those nasty interest sensitive utilities. Ultimately means ALA is paying way too much for it in hindsight (well, maybe in foresight too). In which case, ALA management really did destroy what was a very nice Western Canada operation.


At this particular time, when everyone feels they are supposed to be interest rate sensitive that is true, but they are a utility themselves so you can't really blame them for wanting more of themselves. Hindsight timing is always better then foresight timing. Also, remember they got $32 for the shares they issued to help buy WGL, not the $24.35 the share price is today. We might as well give them some hindsight credit for that.

Anyway, I always say that if you can find 10 companies that are equally hated just like ALA and buy them all. You will probably find that you will regret highly at least 2 of them and make a killing on the other 8. Compare that to a portfolio of stocks that are more favoured and I doubt they would come remotely close in performance. These days finding 10 ALA's is starting to become less difficult.


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## Eder (Feb 16, 2011)

The herd is rarely right in the long run. 

This deal looked good a year ago and still does. Expanding to the US should be standard for Canadian businesses due to our stagnant business climate in Canada.

Here's the low down on the deal (with pictures for those in a hurry).

https://www.altagas.ca/sites/defaul...tor Presentation_April_2017_FINAL_Website.pdf


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## OptsyEagle (Nov 29, 2009)

robfordlives said:


> Utilities are completely out of favor so the closer WGL comes to fruition of course the share price will be negatively impacted. This seems quite elementary. Market doesn't care that it is significantly accretive. This is still too rich in valuation on P/E ratio. Some claim this is measure differently because of X, Y, Z and I don't think that is the case. In fact an investment show I listen to recently commented on their high PE ratio and this is a guy in the business 30 years so if he is thinking PE is how this should be valued others must as well. Wake me up when this is under $20


I also claim that you need to measure a utility differently. *They need to be measured on cash flow not earnings*. Don't get me wrong. I would love to get my hands on some ALA shares at 10 x earnings, but I doubt investors are as dumb as the commentator you listened to was, to sell them to me. I truly wish they were.

If you had two companies that you could possibly buy. Both earned annual net income of $1 per share. The first was a pipeline, the other was not, both had the same growth prospects. In the pipeline you notice that the PREVIOUS shareholders invested $ Billions of dollars in a pipeline that needs virtually no future investment. A little maintenance that is mostly expensed each year before the $1 is earned. You look closer at the income statement and notice that they actually earned $4per share annually, but because of those nice former shareholders investment, they are allowed to recoup and deduct $3 per share in depreciation cost each year for many years to come. It is a non-cash accounting charge and and ttherefore that money is available for current shareholders to re-invest in new growth projects, acquisitions, buy back shares and/or pay out bigger juicier dividends. The other company has no such deductions and simply earns $1 per share. 

So to properly compare the two companies. Company one earns $4 per share of cash flow and $1 per share of earnings, and company 2 earns $1 per share of cash flow and $1 per share of earnings.

Are you seriously telling me that you would not pay a nickel more for company 1 with all that wonderful cash, flowing into your pocket every year, then you would for company 2. Anyway, you will never be given that chance. Smarter people will take it away from you every time. 

You really should be more discerning about the so called experts you listen to.


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## AltaRed (Jun 8, 2009)

Ultimately though, ROCE (or ROA) is the measure at how effectively management has deployed capital. So earnings do matter.... a lot! But more so on longer term rolling averages, especially for capital intensive companies. However, I don't buy the cash flow model at all EXCEPT as a relatively short term (1-5 year) measure to see that the company can cover all of its costs, including taxes, interest and dividends AND be able to re-invest without incurring more debt of any kind. Companies that have a history of mid-single digit ROCE/ROA and even ROE are guaranteed losers longer term, i.e. destruction of capital.

That said, I agree ALA is best analyzed on a cash flow basis....for now. It has gone through rapid growth and DD&A will depress earnings for some time to come. It is also important to look at Debt/EBITDA multiples because that can cause balance sheet problems.In ALA's January presentation, they target 4.5 as a debt/EBITDA ratio and that is not bad (beats Enbridge's 6 multiple by a huge margin). 

I have been an owner of ALA for some time and continue to hold for the upswing that will come upon closure of the acquisition. I just think they are not the company most investors bought into originally pre-acquisition, i.e. a high ROE boutique mid-stream company dabbling mostly in boutique power generation, cost of service midstream processing and a regulated gas utility. Whether the WGL adventure pays out longer term remains to be seen.


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## OptsyEagle (Nov 29, 2009)

AltaRed said:


> So earnings do matter.... a lot!


I agree with everything you said except that. Cash flow is earnings with some accounting adjustments due to the way the government allows a company to recoup past investments. Past investments that very well may have been made by some other shareholder to the benefit of a current shareholder, if they play their cards right.

Yes. ALA and many others require large amounts of capital for growth, but once that particular capital is deployed, it can pay out handsomely. The reason investors get confused is that these companies always want to grow. At times it is difficult to see the Free cash flow that investors will get a future benefit from when it is deployed in growth initiatives, from the cash flow that is required to maintain its current business, but it is there. 

Will I pay the same multiple of free cash flow as I would for after tax earnings on other companies? No. Do I discount free cash flow as if it doesn't provide any benefit at all. Absolutely not.

Anyway, this discussion is based on the difference between a utility and many other businesses whose shares are available for sale. As for ALA providing benefit to its shareholders as we speak. I agree, they have mis-stepped. But, if you want to get a bargain you don't find them in the most successful and widely appreciated companies. In those, the expectations are very high and at times, very hard to meet. In the ALA's, the expectations have been dropped into the gutter. I really can't imagine that they cannot beat the current expectations. Of course new developments can derail any company, good or bad, so I would never back up the truck on any stock.


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## AltaRed (Jun 8, 2009)

OptsyEagle said:


> Yes. ALA and many others require large amounts of capital for growth, but once that particular capital is deployed, it can pay out handsomely. The reason investors get confused is that these companies always want to grow. At times it is difficult to see the Free cash flow that investors will get a future benefit from when it is deployed in growth initiatives, from the cash flow that is required to maintain its current business, but it is there.


I agree ALA is a decent bet at these levels, especially since market sentiment has knocked it into 'oversold' territory.


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## blin10 (Jun 27, 2011)

interesting, I believe once they complete acquisition things should improve... in my opinion this has a high potential of going back to 30's, we'll see


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## doctrine (Sep 30, 2011)

So, ALA may lose a lot of money on their California power plants. They bought them a few years ago and are having to renew at much lower rates. They were thinking of selling them but pulled them off the market. Probably because if they sell them, they'll have to realize a huge loss. The market should have known this, but perhaps investors were holding out hope that ALA's management might be able to pull something out of a hat. Turns out that isn't the case.

That being said, if they deliver the cash flow growth they are projecting over the next 3-4 years, then this is a very good time to get in. But, they will have to prove it. So far, the power plant issue is the only bad move (albeit a big fat one). The WGL transaction is due to close exactly when they announced over a year ago - Q2 2018. 

If they don't close by end-June, expect volatility in the stock - downwards.


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## AltaRed (Jun 8, 2009)

It all hinges on the whims of regulatory PUCs... in this case Washington DC. It is astounding to me PUCs can take so long to make decisions.


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## robfordlives (Sep 18, 2014)

doctrine said:


> So, ALA may lose a lot of money on their California power plants. They bought them a few years ago and are having to renew at much lower rates. They were thinking of selling them but pulled them off the market. Probably because if they sell them, they'll have to realize a huge loss. The market should have known this, but perhaps investors were holding out hope that ALA's management might be able to pull something out of a hat. Turns out that isn't the case.
> 
> That being said, if they deliver the cash flow growth they are projecting over the next 3-4 years, then this is a very good time to get in. But, they will have to prove it. So far, the power plant issue is the only bad move (albeit a big fat one). The WGL transaction is due to close exactly when they announced over a year ago - Q2 2018.
> 
> If they don't close by end-June, expect volatility in the stock - downwards.


They addressed this on the conference call and CLAIM that the California assets are performing better than expected and they will only sell them at a premium now and are looking at other things to sell. Who knows


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## kelaa (Apr 5, 2016)

It seems like Altagas and Enbridge are competing to see who can lose me the most money. 

Can't wait to see if this will turn out like Veresen or Kinder Morgan. Veresen worked out well for us when it was paying 10% dividends back in early 2016. Then it recovered about 50-60% with the rest of the energy sector, and was finally bought out by Pembina.


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## OptsyEagle (Nov 29, 2009)

Yes. Some serious arbitrage going on between the ALA common shares and the receipts. As I speak there is a 9.5% premium on the receipts. That is quite the premium.

I suspect this is more of a kicker benefit if they cancel the WGL deal more then the likelihood that it will happen. Also, anyone trying to offset some big capital gains taxes, they may have acquired from selling other stocks in the strong stock market over the last few years, might think they can sell the common shares at a loss and buy back the receipts immediately and avoid the superficial loss rules. I don't believe they can but I am sure enough investors will think they can to put some undo pressure on the common shares.

Anyway, pretty soon I suspect investors will start salivating at that discount but it may take a while still. The lower the shares go the larger the discount should probably be, but I think 9.5% is a little rich.


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## john.cray (Dec 7, 2016)

Three green days for ALA on the chart. Makes you wonder if it has started bouncing off already.

I am contemplating initiating a brand new position and have been reading what others have to say. It seems pretty discounted at this point regardless of the outcome of the acquisition.


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## AltaRed (Jun 8, 2009)

Maybe.. or a dead cat bounce. I think the market has simply just lost confidence in management and until the executive suite is cleaned out to some degree, the company will likely lag, even post-acquisition. I believe ALA has no strategic direction, aka, what it wants to be when it grows up. It is a bit of everything. Just look at their January investor presentation on their website for a dog's breakfast of bits of everything.


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## john.cray (Dec 7, 2016)

AltaRed said:


> Maybe.. or a dead cat bounce. I think the market has simply just lost confidence in management and until the executive suite is cleaned out to some degree, the company will likely lag, even post-acquisition. I believe ALA has no strategic direction, aka, what it wants to be when it grows up. It is a bit of everything. Just look at their January investor presentation on their website for a dog's breakfast of bits of everything.


From what I gather though you're still holding, no? Are you expecting any significant changes from management or don't want to take the loss just yet?


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## AltaRed (Jun 8, 2009)

john.cray said:


> From what I gather though you're still holding, no? Are you expecting any significant changes from management or don't want to take the loss just yet?


Yes, I am holding my position because I believe there will be a price bounce to about $30 post-acquisition and/or after the potential dumping of certain executives by year end. That is all I will need to exit the position about that time (tax loss harvesting season). 

P.S. I don't believe in taking 'unwarranted' losses when there is a high probability of a significant bounce in the near future, but I never let being in a "cap loss" position be the driver of decision making.

Added: I've learned through the school of hard knocks that a loss is a loss is a loss and waiting to exceed one's ACB is often detrimental to one's health.


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## john.cray (Dec 7, 2016)

AltaRed said:


> Yes, I am holding my position because I believe there will be a price bounce to about $30 post-acquisition and/or after the potential dumping of certain executives by year end. That is all I will need to exit the position about that time (tax loss harvesting season).
> 
> P.S. I don't believe in taking 'unwarranted' losses when there is a high probability of a significant bounce in the near future, but I never let being in a "cap loss" position be the driver of decision making.


I see. Thanks for clarifying.

I am still researching this opportunity and am still very unclear as of what to do just yet. Regardless of the expectation of a short-term bounce, would you recommend an entry at this level for a long-term position, providing the beat-down price today?

Appreciate your thoughts


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## AltaRed (Jun 8, 2009)

I would consider it a speculative trading opportunity at this point, i.e. on the premise a bounce is a matter of 3-6 months away, and additionally their Ridley Point propane export terminal coming on stream in early 2019. 

I don't see it as a long term multi-year hold at this point given their lack of strategic direction. There are companies out there with much clearer strategic direction.


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## john.cray (Dec 7, 2016)

AltaRed said:


> I would consider it a speculative trading opportunity at this point, i.e. on the premise a bounce is a matter of 3-6 months away, and additionally their Ridley Point propane export terminal coming on stream in early 2019.
> 
> I don't see it as a long term multi-year hold at this point given their lack of strategic direction. There are companies out there with much clearer strategic direction.


Thank you. Appreciated!


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## doctrine (Sep 30, 2011)

I like them, but they put a lot of credibility on the line with their defence of the California power asset sales. I read the conference call transcript - my best guess is that the assets are still not worth likely half what they paid for them, but they might be worth a little more than they were last year. Therefore, management can say with a straight face that these assets have more value than they expect, therefore they want to sell something else (if they're worth more than they thought, then why not realize the unexpected windfall??). It's a stretch, in my mind, but the stock is definitely good value even with all of that taken into account.


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## kelaa (Apr 5, 2016)

Maryland approval secured. Just DC left to go. But even if the merger goes through, it doesn't look like it can go back to the mid 30's any time soon. The appetite for this sector is just not there any more with the rising rate environment. I think high twenties is a more realistic spot for now. But then I wonder about the people holding on to the receipts hoping to get the $31 on a cancelled deal without any desire to hold the common shares. That'll also cause a lot of reshuffling which can't be good for the share price.


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## AltaRed (Jun 8, 2009)

Isn't that already reflected in the market price of subscription receipts? They already know they ain't worth $31.


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## kelaa (Apr 5, 2016)

Yeah, it's not worth $31 because no one would buy it for $31 and hold on to for half a year hoping to sell it for $31 again. But it is currently worth more than the common share because apparently the market still assigns some possibility to the deal falling through. What I'm talking about is the what happens if the deal completes. We have a lot of receipt holders who don't actually want the common shares, so they'll sell eventually.


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## AltaRed (Jun 8, 2009)

I understand there will be headwinds for awhile until those folks have thrown in the towel.


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## doctrine (Sep 30, 2011)

The receipts trade at a $1.31, or 5.5% premium to the common shares. The deal will almost certainly go through, and the receipts are reflecting it. 

With a 21% premium if the deal was cancelled for the same receipts, it kind of implies that the market is pricing in 75% chance of success on a risk adjusted basis.


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## doctrine (Sep 30, 2011)

The receipts are now only trading at a $0.55, or 2%, premium to the common shares. With a 21% premium to the receipts if the deal falls through, I am using this to estimate the market is now pricing in a 90% chance of success of the acquisition happening, and the receipts being converted into common shares. Very good news. The stock is also trading up nicely from the early March lows.


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## doctrine (Sep 30, 2011)

There you have it. Agreement in principle with the last regulator.

http://www.stockhouse.com/news/pres...c-announce-a-settlement-in-principle-with-key

The acquisition will proceed. The premium on the receipts have been wiped out. I'm not sure who really thought this acquisition would be rejected, it practically never happens. 

I think ALA will catch up to the sector once the negative sentiment holders are gone. Management really deserve a lot of credit for this. They are definitely doing what they said they would do. Some asset sales are the last piece of the puzzle in which to evaluate them.


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## kelaa (Apr 5, 2016)

I saw the receipt price close with the common shares price today and figured something like this, but as of 1:30 EST the TDDI portal didn't have any news. I bought 250 more shares anyways. Strange this wasn't received as a positive news and the price was down 2% (at the time) on what was a good day for the sector.


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## AltaRed (Jun 8, 2009)

The local PUC still has to rule. Not a done deal literally speaking....yet.


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## kelaa (Apr 5, 2016)

Altagas sells 35% stake in its three northwest BC hydro facilities for $922 million to JV between Axium Infrastructure and Manulife. Market apparently likes this, up 2.6% on the news. Two more weeks to go until DC decision.


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## AltaRed (Jun 8, 2009)

kelaa said:


> Altagas sells 35% stake in its three northwest BC hydro facilities for $922 million to JV between Axium Infrastructure and Manulife. Market apparently likes this, up 2.6% on the news. Two more weeks to go until DC decision.


ALA has quite some distance yet to go to raise the amount of equity they said they'd be putting into the WGL purchase. More of the same needed to get stock price out of the gutter.


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## kelaa (Apr 5, 2016)

Altagas sells 35% stake in its three northwest BC hydro facilities for $922 million to JV between Axium Infrastructure and Manulife. Market apparently likes this, up 2.6% on the news. Two more weeks to go until DC decision.


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## doctrine (Sep 30, 2011)

They got a very nice price for that sale. Looking very good now.


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## AltaRed (Jun 8, 2009)

ALA continues to disappoint, or at least Q2 results have nothing materially positive to say. There is still hope when WGL results start being a factor. I am only marginally underwater on this one, and will give this sucker one more year based on integration of WGL results, startup of their propane export terminal, exiting non-core assets to pay down credit facility, etc. Stock price remains mired in the same range as in 2011, albeit yield has been the saviour in an otherwise lacklustre story.


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## RBull (Jan 20, 2013)

I'm a little underwater but not counting dividends. I'm of the same mind as you- give a little more time with changes made and time for effect etc but this thing soon needs to get moving. Wonder where CEO change stands and if that will eventually help.


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## Eder (Feb 16, 2011)

I've been adding lately...yield is pretty safe,management has shown in the past they know how to swallow companies, they have started to divest some assets. I dont want to buy them over $30 but may continue to nibble here. (I think the market is wrong on these guys)


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## AltaRed (Jun 8, 2009)

Eder said:


> (I think the market is wrong on these guys)


Probably so, but it has become a 'show me' stock and will take some effort to regain a following.


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## OptsyEagle (Nov 29, 2009)

TD just updated the status of the ALA Canada IPO. It is now closed with an expected (but not guaranteed) price of $14.50 per share. A dollar under the prospectus estimate of $15.50.

Quite bizarre that they had to lower the price. In reading the pro-forma numbers for the new company they will now have a 6.5% yield with a 30% payout ratio. I believe 100% of their business is regulated utility and long term contracted contracts. 

You have to know you have found a value sector when the brokers cannot even give this stuff away. Too bad you can't smoke it. All anyone can do with their products is heat their homes, heat their hot water, turn on their lights, refrigerate their food, air condition their homes, cook their food, run their cell phones, work their TVs, vacuum their homes, power their computers, raise their elevators and a few other things ...but as I said, we just can't smoke it. Too bad. Might have been a good investment.


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## OptsyEagle (Nov 29, 2009)

Altagas Canada (ACI) is out of the gate today, trading on the TSX. Nothing overwhelming to report, but nice to see the issue of funding the WGL acquisition completed.


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## doctrine (Sep 30, 2011)

The market is pricing in a 25-30% dividend cut, regardless of whether it will actually happen. It remains to be seen who is correct. Markets have mispriced utility companies before, Veresen was a prime example. They were easily able to maintain it because of the long term contracted and monopoly nature of the business. The original expectation for dividend growth was 8-10% a year through 2021, which I heard racketed down to maybe 3% for this year. A dividend cut just 6 months after a policy of 8-10% growth would be pretty shocking for a utility.


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## AltaRed (Jun 8, 2009)

The market did not like 3Q results this morning, the stock taking about a 14% haircut. Reading the results, I believe this is a market over-reaction and I suspect some bottom feeders will be active shortly. That said, long suffering shareholders can be forgiven for getting tired of waiting, and thereby capitulating and cleaning up their portfolio before year end.

https://www.altagas.ca/newsroom/new...r-results-and-framework-balanced-funding-plan


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## doctrine (Sep 30, 2011)

The dividend will be cut significantly. The company is turning into a train wreck. And the WGL acquisition performed incredibly poorly in its very first quarter. Only 6 months ago ALA were predicting 8-10% dividend growth through 2021 and now there will probably be a 40% cut. And even worse, they are dragging out the announcement for a few more months, leaving uncertainty. And the investment grade ratings may be at risk. With no idea what management is going to do, this is not really investable and probably won't be for a year or two.


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## OptsyEagle (Nov 29, 2009)

I was a little surprised that ALA did not cut their dividend today. Not sure what they are waiting for. It is now a foregone conclusion. 

I started to suspect a cut when I reviewed the prospectus for the Altagas Canada (ACI) IPO. They gave up a lot of their cash flow to these new IPO investors and didn't even ask for much money in return. Actually the stock market is still not asking for the appropriate price for that cash flow but that is a topic for another stock thread. In reviewing the prospectus, I wondered how ALA would be able to pay the dividend when they would now only receive 45% of the dividends from ACI and that dividend was coming from only around 45% of ACI's cash flow (ACI's payout ratio). With simple math one can then see that ALA would only receive about 20% of the cash flow from ACI that they were previously getting.

Now they have discontinued the DRIP and said that they want to sell off another $2 Billion of assets. It would be virtually impossible for them to continue with the current dividend, while giving up all that cash flow. The math just doesn't work. So why not cut it yesterday. Is it possible the battery died in their accountants calculator? I would have lent them mine. 

Anyway, that is how I see it and I suspect that is how many market participants also see it. I also suspect today's price action is from investors throwing in the towel and taking solace in a nice tax loss. I suspect the professionals will be buying in soon, but there is still a lot of unknowns that cannot be calculated. Can't really say what price discounts them but I would think we are getting close.


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## robfordlives (Sep 18, 2014)

Perhaps off topic but is there a greater destruction of wealth for CAnadian shareholders when these Canadian focused companies start entering other countries? Today IPL is getting hammered for such a move. Add it to FTS, EMA, CU, CPG, etc that seem to have no end in the share price destruction once they get outside their area of expertise.


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## OptsyEagle (Nov 29, 2009)

The only thing worse would be trying to run a utility or pipeline "within" Canada. That business is pretty much shut down from our inter provincial trade barriers, our socialist governments (Doug Ford aside) and our preference to destroying our economy so that we can reduce the world carbon output by 0.000001% or about the same amount that is given off from the intestinal gas of about 88 cows.


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## AltaRed (Jun 8, 2009)

OptsyEagle said:


> I started to suspect a cut when I reviewed the prospectus for the Altagas Canada (ACI) IPO. They gave up a lot of their cash flow to these new IPO investors and didn't even ask for much money in return. Actually the stock market is still not asking for the appropriate price for that cash flow but that is a topic for another stock thread. In reviewing the prospectus, I wondered how ALA would be able to pay the dividend when they would now only receive 45% of the dividends from ACI and that dividend was coming from only around 45% of ACI's cash flow (ACI's payout ratio). With simple math one can then see that ALA would only receive about 20% of the cash flow from ACI that they were previously getting.
> 
> Now they have discontinued the DRIP and said that they want to sell off another $2 Billion of assets. It would be virtually impossible for them to continue with the current dividend, while giving up all that cash flow. The math just doesn't work. So why not cut it yesterday. Is it possible the battery died in their accountants calculator? I would have lent them mine.


I've not done the calculations to see how much dividends from WGL replaces dividends lost to current and future divestitures. Not worth my time to do so.


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## OptsyEagle (Nov 29, 2009)

AltaRed said:


> I've not done the calculations to see how much dividends from WGL replaces dividends lost to current and future divestitures. Not worth my time to do so.


I run my portfolio like an index fund where most positions are fairly small. If it wasn't for the situation where the stocks that go down become less significant in the portfolio and the stocks that go up become more significant, I doubt I would have done as well at all.

That being said, I still like to poke my nose into these things, since I find them very interesting. Very little of what happens today with this company or any other will matter much in 2028 so I try not to get too exited. As you say, it is not really worth the time.


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## AltaRed (Jun 8, 2009)

What I am surprised about is what seems to be the lack of a shareholder revolt. Surely the executives should have been run out of town already.


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## OptsyEagle (Nov 29, 2009)

Didn't they get rid of the CEO and CFO. My memory is not great anymore but I thought that might have been the case.


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## Eder (Feb 16, 2011)

https://www.altagas.ca/newsroom/new...david-harris-president-and-ceo-company-be-led

July they replaced CEO.


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## robfordlives (Sep 18, 2014)

OptsyEagle said:


> The only thing worse would be trying to run a utility or pipeline "within" Canada. That business is pretty much shut down from our inter provincial trade barriers, our socialist governments (Doug Ford aside) and our preference to destroying our economy so that we can reduce the world carbon output by 0.000001% or about the same amount that is given off from the intestinal gas of about 88 cows.


Some would argue staying in their sandbox where their expertise laid would have been the better play. Some of us are very content collecting a 5-7% dividend with plodding share price appreciation that mirrors inflation/population growth. I forgot another one - Chemtrade. Their US acquisition has been disastrous so far. No doubt CxO bonuses are somehow based on growing the companies into debt hell.

Interestingly enough, rarely do we see any foreign interests sniffing around at Canada's assets and when they do they are blocked (see Aecon sale).


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## AltaRed (Jun 8, 2009)

Management took a very good little company with expertise in mostly COS gas and liquids processing in the WCSB and destroyed it with CEO ego and ambition. I agree that had it stayed in its niche, it would have been successful and potentially a take out candidate by a bigger pacman. Now it is so much pig fodder.


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## newfoundlander61 (Feb 6, 2011)

On Market Call Tonight Jaime Carrasco of Canaccord Genuity selected AltaGas as a top pick. I don't take advice from the guests in general for my own portfolio but like to listen to viewers questions etc.


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## AltaRed (Jun 8, 2009)

newfoundlander61 said:


> On Market Call Tonight Jaime Carrasco of Canaccord Genuity AltaGas as a top pick. I don't take advice from the guests in general for my own portfolio but like to listen to viewers questions etc.


I imagine at ~$16, there could be deep value there. Not quite a speculative gamble because WGL is for real but.....


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## MrMatt (Dec 21, 2011)

newfoundlander61 said:


> On Market Call Tonight Jaime Carrasco of Canaccord Genuity selected AltaGas as a top pick. I don't take advice from the guests in general for my own portfolio but like to listen to viewers questions etc.


A lot of people have been talking about utilities. Makes me uncertain.


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