Canadian Money Forum banner

1 - 18 of 18 Posts

·
Registered
Joined
·
2,766 Posts
All utilities have been flying. AQN has been marketing itself as an ESG play with no fossil fuel exposure. I think it's a little expensive, but then again all utilities are.
 

·
Registered
Joined
·
10,200 Posts
It means they continue to fund development and acquisition opportunities to grow the company. They have to balance using debt and equity to keep the balance sheet healthy. As long as development provides double digit ROC and acquisitions are accretive, it is an effective use of money. Of course, that is the trust one puts in management....that they spend the money wisely to avoid dilution of existing shareholders. Not the first time AQN has gone to the market and it won't be the last time either.
 

·
Registered
Joined
·
1,419 Posts
If I'm not mistaken, and if I am please correct me, the share price may drop because the value of the company has not increased and the number of shares has increased. dilution of shares.
 

·
Registered
Joined
·
486 Posts
If I'm not mistaken, and if I am please correct me, the share price may drop because the value of the company has not increased and the number of shares has increased. dilution of shares.
The value of the company has increased -- it has the cash from the share sale on its books.

Grossly simplified: Company A has 100 shares worth $1 each. It issues 10 new shares at $1. It adds the $10 to its assets, to be used for general corporate purposes. The company now ought to be worth $110 -- still $1 a share.
 

·
Registered
Joined
·
2,766 Posts
That is a monster issue of shares - almost 10% of the company. You would hope that they can invest that money at a rate of return that is better than their current assets, or the overall value of the shares could decrease. The problem with many of these types of companies, is that they can't. They went public or developed excellent assets and get a high multiple. But because they are so slow growth, the only way to grow the company is to issue shares.
 

·
Registered
Joined
·
2,766 Posts
Yet, did they deploy their shares well from those issuances? Compare annual 2019 results to 2018. 2019 revenue below 2018 revenue. Adjusted net earnings up 3% in total, but down 5% per share because of dilution. And that was before another 10% dilution. You are getting less revenue, net earnings, EBITDA, funds from operation, per share than you were 2 years ago. It doesn't mean it isn't a buy, and the share price can go up for any reason, but it is just a cause for further investigation. I would be concerned a little and my assumption is that AQN's per share metrics and dividend growth will probably be slowing down.
 

·
Registered
Joined
·
10,200 Posts
While I agree with you using the 2019 vs 2018 result comparisons on a per share basis, it is not entirely fair to compare narrow snapshots. AQN has $9B in the development pipeline to generate even more earnings. The assumption of course is the injection of capital today to fund that program depresses near term per share metrics, but will pay off when the new projects start generating cash/earnings themselves. Only time will tell of course. If they don't deliver, share prices will get hammered in the next 2-4 years if results are not forthcoming. Or they deliver and have an appetite for obtaining yet more capital for further growth, and so on.
 

·
Registered
Joined
·
1,419 Posts
The value of the company has increased -- it has the cash from the share sale on its books.

Grossly simplified: Company A has 100 shares worth $1 each. It issues 10 new shares at $1. It adds the $10 to its assets, to be used for general corporate purposes. The company now ought to be worth $110 -- still $1 a share.
I didn't know that the new share issue had already been purchased. That is significant. Makes sense that the price would not be impacted. scott Barrow (G&M) mentioned that the new issues had been purchased at a price of 17.10
 

·
Registered
Joined
·
1,163 Posts
I am a long time holder of AQN (first purchased in 2012 ACB under $6). I have tried to add to this position from time to time without success. My most recent attempt was after it raised it's dividend again this year. I have yet to process the implications of such a large issuance of shares. The dialogue that has followed in this thread the past couple days has given me additional insight and forced me to reevaluate my confirmation bias. I still believe AQN is a great company and stock but would agree that execution will determine future share price. I have been burnt a few times with what I believed to be solid companies failing to execute. This is perhaps why I lean towards dividend growth companies so that I can derive income while the price fluctuates. One can easily trap themselves by holding a bad company that continues to pay a dividend it can no longer afford. I have learned a lot about this in my journey of DIY. One must monitor their positions and if one takes the time they can see the warning signs. I plan to hold my position in AQN but now must decide if I want to add and at what price. Thanks to all for sharing the posts above.
 

·
Registered
Joined
·
10,200 Posts
I didn't know that the new share issue had already been purchased. That is significant. Makes sense that the price would not be impacted. scott Barrow (G&M) mentioned that the new issues had been purchased at a price of 17.10
These are done as 'bought' deals by the time they are announced. The underwriters already own the new shares at $17.10 (less a fee), and now they are peddling them to the public. The market may not like this issuance and thus the stock will trade lower. Investors may then be reluctant then to express interest to their broker to buy at $17.10 and then the brokers will have to peddle what they have not been able to sell at $17.10 at market price, taking a loss in the process.
 

·
Registered
Joined
·
10,200 Posts
Rapid growth companies often come back to the equity markets for capital in order to fund their growth. This is completely normal and good as long as the opportunities are indeed accretive to the company's operations. The problem comes when that growth is no longer as good as the base company and increased share issuance becomes true dilution as noted by Doctrine.

Many investors, including many CMF members, fell over themselves for years buying into the Crescent Point Energy pacman. That worked as long as the opportunities were, or appeared to be, truly accretive. It went to hell when the company kept overpromising and undelivering and it became apparent this company was a house of cards. It may be in the doghouse forever, even if oil prices bounce back. It will (should) be whipped back in the woodshed if it tries to go to the equity markets again.
 

·
Registered
Joined
·
2,766 Posts
The Crescent Point comparison is a good one. CPG was valued because of its high margin oil business. Because it paid out such a high dividend, to grow the company they had to issue shares. They were fairly cavalier about it and bought assets they claimed were valuable. However, the last few years has shown this not to be the case. They have unwound many of those in order to improve the company's profile and are slowly reverting back to what they were in the first place. Except, with a share price that is 90%+ lower.

Altagas is another comparison. They also got hurt by continually growing by acquisition and also new projects, and eventually when execution failed the share price fell. They are still down over 50% from their 2014-2015 highs.

AQN unlikely to drop 90%, and are in a favourable industry especially with their renewable business, which is on trend. You just can't depend on share price appreciation, and you should be hesitant about dividend growth moving forward as that dividend is closing in on $500M a year. You just know this company is going to issue shares every time the share price grows.
 
1 - 18 of 18 Posts
Top