AltaGas Services Ltd. (ALA-T)
Re: AltaGas Services Ltd. (ALA-T)
$31 subscription receipt offering
http://altagas.mwnewsroom.com/press-rel ... 1083927001
http://altagas.mwnewsroom.com/press-rel ... 1083927001
"We have two classes of forecaster: Those who don’t know and those who don’t know they don’t know.” John Kenneth Galbraith
Re: AltaGas Services Ltd. (ALA-T)
I know they plugged "culture" a few times in the presentation, but there is a long history of companies buying east-west or west-east who had a huge difficulty integrating their acquisition. Much easier to go North-South, but this a utility which should be quite different.
Initially I'm not too thrilled with the deal. Paying 24x future earnings for a utility, taking on more debt is very similar to the deals that EMA & FTS did recently. Just because everyone is doing it doesn't mean its a smart idea.
I'm inclined to sell in the next few weeks prior to the close because of the chance the integration isn't executed smoothly and it affects earnings growth. The street will have a low tolerance for mistakes here.
Initially I'm not too thrilled with the deal. Paying 24x future earnings for a utility, taking on more debt is very similar to the deals that EMA & FTS did recently. Just because everyone is doing it doesn't mean its a smart idea.
I'm inclined to sell in the next few weeks prior to the close because of the chance the integration isn't executed smoothly and it affects earnings growth. The street will have a low tolerance for mistakes here.
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Re: AltaGas Services Ltd. (ALA-T)
It doesn't seem quite fair that new investors get in at ground level while long term shareholders take a 6% haircut in marketable value to their shares
Re: AltaGas Services Ltd. (ALA-T)
Well, I hear you. However, I'm confident in Emera and Fortis to deliver on the expansions they have undertaken and feel Alta Gas will do the same. Seems to me they are 3 quite similar companies in terms of quality - with maybe Fortis getting a slightly higher score than the others.JaydoubleU wrote:It doesn't seem quite fair that new investors get in at ground level while long term shareholders take a 6% haircut in marketable value to their shares
2 yen
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Re: AltaGas Services Ltd. (ALA-T)
I'm not sure if it's a marketing strategy or what, but the target of 8-10% annual dividend growth on top of the current 6.8% yield sure is enticing. At 8% growth, the yield would be 10% in 5 years
Is it a fly trap?
It has to be sustainable, however, cause as brad said elsewhere, if they don't follow through, the shares will tank.
Is it a fly trap?
It has to be sustainable, however, cause as brad said elsewhere, if they don't follow through, the shares will tank.
Re: AltaGas Services Ltd. (ALA-T)
I'm going to stay in the position, but they will have a short leash for the next 24 months.
My allocation to ALA is not going any where near overweight despite that dividend.
My allocation to ALA is not going any where near overweight despite that dividend.
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Re: AltaGas Services Ltd. (ALA-T)
I don't follow this, but I would caution against annual increases in share counts as a means of funding the dividend growth over time. It's extremely difficult to buy a business with a 4% earnings yield, pay a 6% dividend and grow the dividend by 10% per annum.JaydoubleU wrote:I'm not sure if it's a marketing strategy or what, but the target of 8-10% annual dividend growth on top of the current 6.8% yield sure is enticing. At 8% growth, the yield would be 10% in 5 years
Is it a fly trap?
It has to be sustainable, however, cause as brad said elsewhere, if they don't follow through, the shares will tank.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
Thomas Babington Macaulay in 1830
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Re: AltaGas Services Ltd. (ALA-T)
I agree.
I was tempted to add to my position on the drop, but I think I'll follow brad and just stay put, watching very carefully. I like the other projects ALA has been into--the new battery storage plant in California is neat and bodes well for the future http://www.marketwired.com/press-releas ... 191585.htm
I just think the WGL acquisition is a BIG BITE. Also wary of how ALA will react to interest rate increases.
Hold.
I was tempted to add to my position on the drop, but I think I'll follow brad and just stay put, watching very carefully. I like the other projects ALA has been into--the new battery storage plant in California is neat and bodes well for the future http://www.marketwired.com/press-releas ... 191585.htm
I just think the WGL acquisition is a BIG BITE. Also wary of how ALA will react to interest rate increases.
Hold.
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Re: AltaGas Services Ltd. (ALA-T)
Perhaps the "idiots" weren't so foolish after allDescartes wrote:I bought a bit more at the end of trading today.
This reaction by short traders and panicky retail shareholders to a Reuters article that neither side of the negotiation even contributed to is overblown and I suspect it will be temporary. I love that some idiots people didn't want to hold it through the weekend!
I *wish* it had gotten below $30 but almost under $32 is good for a nibble.
*If* this negotiation gets serious then I *might* think about this some more.
You may get some at $ 30 if this keeps up. I bought some ALA.R this a.m., hoping that the deal doesn't go through and I get back $31 plus the dividends, otherwise I become the proud owner of Altagas.
Re: AltaGas Services Ltd. (ALA-T)
Indeed. The speed of this deal from rumour to actuality bit me in the a**. It was creeping back to $34 when the news hit.rhenderson wrote:Perhaps the "idiots" weren't so foolish after allDescartes wrote:I bought a bit more at the end of trading today.
This reaction by short traders and panicky retail shareholders to a Reuters article that neither side of the negotiation even contributed to is overblown and I suspect it will be temporary. I love that some idiots people didn't want to hold it through the weekend!
I *wish* it had gotten below $30 but almost under $32 is good for a nibble.
*If* this negotiation gets serious then I *might* think about this some more.
You may get some at $ 30 if this keeps up. I bought some ALA.R this a.m., hoping that the deal doesn't go through and I get back $31 plus the dividends, otherwise I become the proud owner of Altagas.
I still have that nibble mentioned above.
Deal doesn't close till 2018 so there is some time for the market to recover its senses (or for me to recover mine).
The presentation on the deal left me a little hesitant:
- The promise of 8-10% annual dividend growth seems to be predicated on a lot of capital investment over the coming years. How will they finance these growth projects? More stock issue?
The Altagas CEO omitted mentioning a reduced dividend payout ratio both times it was written on his presentation slides which was perhaps telling.
WGL is an old utility company with maybe old ways of doing things. I'm not sure how this gibes with the growth-focused management of Altagas. Yet they claim there is synergy between the two companies.
I expect keeping WGL management and workforce intact was a costly concession: surely there must be some overlap here, some opportunity for cost reduction when the two are combined.
"A dividend is a dictate of management. A capital gain is a whim of the market."
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Re: AltaGas Services Ltd. (ALA-T)
Just a thought but if I had a lot of ALA, I would sell it today at $ 30.30 and buy ALA.R at close to $29.
Might even qualify as a tax loss, if needed.
Might even qualify as a tax loss, if needed.
Re: AltaGas Services Ltd. (ALA-T)
I cannot find any reference to symbol ALA.R
Could someone please tell me which security that is?
Could someone please tell me which security that is?
Re: AltaGas Services Ltd. (ALA-T)
ALA.R is the AltaGas subscription receipts that will be exchanged for ALA common shares when/if the WGL acquisition is closed. See here.Hogwild wrote:I cannot find any reference to symbol ALA.R
Could someone please tell me which security that is?
Re: AltaGas Services Ltd. (ALA-T)
Altagas receipts closed higher than the share price today...
So now the chance of the deal not closing is creating the higher value (redeeming at $31 vs redeeming into stock)?
Thoughts on this?
So now the chance of the deal not closing is creating the higher value (redeeming at $31 vs redeeming into stock)?
Thoughts on this?
Re: AltaGas Services Ltd. (ALA-T)
Thought the subscrption receipts were trading higher than the common shares for some months already?
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Re: AltaGas Services Ltd. (ALA-T)
Since I've been tracking them (admittedly only this year) the receipts have always traded at a discount to the stock price.
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Re: AltaGas Services Ltd. (ALA-T)
There seems to be a debate out there over the sustainability of the dividend. The current yield of 7.15% and weak stock price would indicate the market is highly skeptical of ALA and/or the WGL deal.
On the other hand, observers such as Peter Hodson argue the dividend is safe: http://business.financialpost.com/inves ... dae8e1dfe9
Other analysts appear divided over whether ALA is to be avoided or a TOP PICK: http://www.stockchase.com/company/view/51 Ryan Bushell and Douglas Kee think ALA will even RAISE the dividend this year.
Altagas management measures payout ratio on AFFO, like many of the other pipelines and utilities. By this measure the payout ratio is about 60%, lower than PPL or ENF.( see pg. 42 of the investor presentation: https://www.altagas.ca/sites/default/fi ... tation.pdf)
There are so many different divisions and projects underway that I find it difficult to analyze. I listen to management, which expects high single digit growth in EBITDA for 2017. Last year they predicted 20% growth and they achieved that. The CFO Tim Watson seems confident in dividend sustainability and growth, but this is projected for 2018. https://www.altagas.ca/sites/default/fi ... _FINAL.pdf
I continue to hold. ALA is either very undervalued and has tremendous upside, or it will be consigned to the rubbish heap of Canadian energy high-yielding dividend payers like CPG. I guess I'm betting on the former, but I've been wrong before.
On the other hand, observers such as Peter Hodson argue the dividend is safe: http://business.financialpost.com/inves ... dae8e1dfe9
Other analysts appear divided over whether ALA is to be avoided or a TOP PICK: http://www.stockchase.com/company/view/51 Ryan Bushell and Douglas Kee think ALA will even RAISE the dividend this year.
Altagas management measures payout ratio on AFFO, like many of the other pipelines and utilities. By this measure the payout ratio is about 60%, lower than PPL or ENF.( see pg. 42 of the investor presentation: https://www.altagas.ca/sites/default/fi ... tation.pdf)
There are so many different divisions and projects underway that I find it difficult to analyze. I listen to management, which expects high single digit growth in EBITDA for 2017. Last year they predicted 20% growth and they achieved that. The CFO Tim Watson seems confident in dividend sustainability and growth, but this is projected for 2018. https://www.altagas.ca/sites/default/fi ... _FINAL.pdf
I continue to hold. ALA is either very undervalued and has tremendous upside, or it will be consigned to the rubbish heap of Canadian energy high-yielding dividend payers like CPG. I guess I'm betting on the former, but I've been wrong before.
Re: AltaGas Services Ltd. (ALA-T)
JaydoubleU, you've pretty well summarized my concerns with ALA and its dividend payout ratio. Most analysts use AFFO payout ratio to evaluate pipeline/midstream companies, and by that measure, ALA's dividend appears to be sustainable. Using AFFO payout ratio makes sense for pipeline/midstream companies, since they have significant non-cash charges that reduce earnings. I've come to the same conclusion as you, and I will continue to hold ALA.
Re: AltaGas Services Ltd. (ALA-T)
Just remember that using AFFO is a way to bury mistakes. It clearly is a good short term measure regarding dividend sustainability and cash available for re-investment but earnings is the long term measure of efficient use of capital. Non-cash items are important to measure because that is where the warts lie. For example, goodwill on the books is a cancer that has to be come (mostly) out of shareholder equity.
FWIW, the reason a company like Exxon was always a AAA company (don't know if it still is) is because it had one of the best ROCEs in the business.A company cannot live a long prosperous life without a good ROCE and a good ROE.
P.S. I agree the jury is out on ALA and continue to hold my shares. But it will never be the kind of company that could have continued to grow organically in the kind of developments it was successfully undertaking. It is bleeding cash on those subscription receipts, which are not yet doing anything for the company.
FWIW, the reason a company like Exxon was always a AAA company (don't know if it still is) is because it had one of the best ROCEs in the business.A company cannot live a long prosperous life without a good ROCE and a good ROE.
P.S. I agree the jury is out on ALA and continue to hold my shares. But it will never be the kind of company that could have continued to grow organically in the kind of developments it was successfully undertaking. It is bleeding cash on those subscription receipts, which are not yet doing anything for the company.
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Re: AltaGas Services Ltd. (ALA-T)
I put my TFSA contribution for 2017 into ALA during January just before they purchased WGL Holdings to broaden their American footprint. Great timing However if the deal gets the green light, and so far there doesn't seem to be any major hindrance, I'm heartened by the Washington Gas dividend record - uninterrupted increases since 1977. That's the kind of stockholder friendly culture I look for. In addition Altagas will be more of an energy/utility transmission provider with contracted/regulated assets rather than any direct exposure to commodity prices.
The price will fluctuate until mid 2018 - when the receipts are exchanged at either $31 if the deal collapses or common stock if it gets the go ahead. In the investment scheme of things it won't have too much of an impact on my portfolio if I'm completely wrong.
AltaRed - I agree with your assessment and continue to hold my small position.
The price will fluctuate until mid 2018 - when the receipts are exchanged at either $31 if the deal collapses or common stock if it gets the go ahead. In the investment scheme of things it won't have too much of an impact on my portfolio if I'm completely wrong.
AltaRed - I agree with your assessment and continue to hold my small position.
"We have two classes of forecaster: Those who don’t know and those who don’t know they don’t know.” John Kenneth Galbraith
Re: AltaGas Services Ltd. (ALA-T)
Holding. Won't be adding any.bpither wrote: ↑12 Jul 2017 11:23 I put my TFSA contribution for 2017 into ALA during January just before they purchased WGL Holdings to broaden their American footprint. Great timing However if the deal gets the green light, and so far there doesn't seem to be any major hindrance, I'm heartened by the Washington Gas dividend record - uninterrupted increases since 1977. That's the kind of stockholder friendly culture I look for. In addition Altagas will be more of an energy/utility transmission provider with contracted/regulated assets rather than any direct exposure to commodity prices.
The price will fluctuate until mid 2018 - when the receipts are exchanged at either $31 if the deal collapses or common stock if it gets the go ahead. In the investment scheme of things it won't have too much of an impact on my portfolio if I'm completely wrong.
AltaRed - I agree with your assessment and continue to hold my small position.
It's amazing how analysts can have such divergent opinions sometimes.
2 yen
Re: AltaGas Services Ltd. (ALA-T)
ALA actually shed itself of most of its hydrocarbon commodity price exposure over about 1.5 years and became essentially a mid-stram processor immune to commodity prices. Granted it took equity positions in a few NG companies like Painted Pony (?) to secure the midstream contract, but that also gives ALA some influence on Painted Pony's direction.bpither wrote: ↑12 Jul 2017 11:23 I'm heartened by the Washington Gas dividend record - uninterrupted increases since 1977. That's the kind of stockholder friendly culture I look for. In addition Altagas will be more of an energy/utility transmission provider with contracted/regulated assets rather than any direct exposure to commodity prices.
I liked ALA's foray into run-of-the-river hydro projects with long term pricing contractts with BC Hydro and there are multiple opportunities remaining. From my perspective, paying a premium for WGL doesn't really do anything for the company. There will be an overhang of goodwill on the books for some time... just to buy a cash flow stream. Maybe that is what it took to get to the size and asset mix to get better terms on its debt with big lenders but I have not done any analysis to suggest that is the case. BWTFDIK
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Re: AltaGas Services Ltd. (ALA-T)
When it comes to energy, you know enough, Altared. I see ALA's movement into gas distribution as analogous to ENB's acquisition of Spectra, TRP's of Columbia, and PPL's of Veresen. It's a shift to natural gas, in some cases away from oil/oil sands, and also into the US, where there may be greater opportunities for growth. I am intrigued by ALA's battery storage project which, though a minimal fraction of EBITDA, is said to be the holy grail for renewable energy. Though I sometimes wonder if management has a clear vision or just can't quite make up its mind whether to focus on power, midstream, or regulated utilities; they have irons in every fire.I liked ALA's foray into run-of-the-river hydro projects with long term pricing contractts with BC Hydro and there are multiple opportunities remaining. From my perspective, paying a premium for WGL doesn't really do anything for the company. There will be an overhang of goodwill on the books for some time... just to buy a cash flow stream. Maybe that is what it took to get to the size and asset mix to get better terms on its debt with big lenders but I have not done any analysis to suggest that is the case. BWTFDIK
Re: AltaGas Services Ltd. (ALA-T)
So they don't learn..... 2Q earnings release had nothing exciting to talk about so they instead crunch out a bunch of 'precise' forward looking projections and speculate on a 4Q dividend increase. Exactly what they should NOT be doing given the cash flow bleed on the subscription receipts.
Why is this starting to look like a duck... as in looks like a duck, walks like a duck, and talks like a duck? Below $29 and counting today. Ah well.... I am now slightly underwater (not counting dividends) and guess I will hang in to see if they get a bump with the WGL acquisition. At least that part is progressing.
Why is this starting to look like a duck... as in looks like a duck, walks like a duck, and talks like a duck? Below $29 and counting today. Ah well.... I am now slightly underwater (not counting dividends) and guess I will hang in to see if they get a bump with the WGL acquisition. At least that part is progressing.
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Re: AltaGas Services Ltd. (ALA-T)
I can find the subscription receipt ticker symbol in my TD trading account and on the Globe and Mail "My Watchlist" (ALA.R-T) but not on Google Finance. Anyone found the latter?
"We have two classes of forecaster: Those who don’t know and those who don’t know they don’t know.” John Kenneth Galbraith