Following a roughly 40 per cent collapse since November, Algonquin Energy & Utilities shares (AQN.TO)(AQN) have been upgraded to “obese” by a Wells Fargo analyst. However there is a catch.
Citing headwinds from larger rates of interest and inflation, to building delays for renewable vitality tasks, the Oakville, Ont.-based energy utility slashed its 2023 revenue steerage when it reported third-quarter monetary outcomes final 12 months. The “strain” CEO Arun Banskota described on a Nov. 11 convention name with analysts sparked fears the corporate’s hefty dividend could also be in jeopardy, and raised doubts about Algonquin’s potential to finance deliberate investments.
Banskota, who joined Algonquin in 2020, is ready to offer a enterprise replace earlier than markets open on Jan. 12.
Wells Fargo’s Neil Kalton says the corporate is dealing with a “disaster in confidence.” His improve to “obese” from “equal weight,” with a $9 value goal for U.S.-listed shares, hinges on the announcement of “aggressive strategic actions to place the corporate on a firmer monetary footing.”
“Such actions embody a fabric dividend lower and a paring again of capital funding,” he wrote in a Jan. 5 observe to purchasers. “The result of this replace may have vital implications on our thesis.”
Kalton says Algonquin’s roughly 10.5 per cent dividend yield dwarfs the three.5 per cent common amongst friends, and “by no means really squared with the corporate’s aggressive, capital-intensive progress ambitions.”
“Hindsight is 20/20, and we perceive how the board of administrators might turn out to be hostage to the [dividend] coverage, particularly given the excessive retail possession (>50 per cent),” he wrote.
Including to the uncertainty surrounding Algonquin is the corporate’s proposed $2.6 billion acquisition of Kentucky Energy by means of its American subsidiary, Liberty Utilities.
In mid-December, U.S. federal regulators denied the transaction. Termination of the deal requires Algonquin to pay the sellers, Ohio-based American Electrical Energy, a US$65 million break charge beneath sure circumstances.
“The trail ahead stays unclear in gentle of FERC’s (Federal Vitality Regulatory Fee) rejection of the deal,” Kalton wrote. “We predict administration will publicly specific a dedication to finish the $2.6 billion acquisition.”
Toronto-listed Algonquin shares have fallen almost 60 per cent since their peak above $22 in early 2021. The inventory was basically flat on Friday, including 0.21 per cent to $9.47 as at 10:35 a.m. ET.
Algonquin shouldn’t be the one utility beneath strain as of late. Calgary-based TransAlta Renewables (RNW.TO) shares have tumbled greater than 38 per cent over the previous 12 months.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Observe him on Twitter @jefflagerquist.
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