Rbc
RBC INSIGHT Algonquin Power & Utilities Corp. First Glance: Slightly better-than-expected Q2; awaiting completion of Kentucky Power acquisition NYSE: AQN | USD 14.47 | Outperform | Price Target USD 17.00 Sentiment: Neutral Our take We believe the modestly better-than expected Q2/22 results and updates will have a neutral impact on the shares of Algonquin. On the conference call (Friday, August 12, at 10:00AM ET), we expect investors to focus on any incremental updates regarding the pending acquisition of Kentucky Power, commentary on President Biden's Inflation Reduction Act in relation to the company's renewable development activities, and potential updates relating to the company's asset recycling initiative. We note that the company did not explicitly reiterate its 2022 EPS guidance of $0.72-0.77, but we expect management to affirm its guidance in the earnings call. Details Q2/22 results were slightly better-than-expected. Algonquin's Q2/22 Adjusted EPS of $0.16 exceeded our estimate of $0.14 and consensus of $0.15. The main variance from our estimate is lower-than-expected income taxes, as the company may have utilized some tax credits. From an EBITDA perspective, the Q2/22 Adjusted EBITDA of $289 million (including $26 million of HLBV income) was largely in line with our estimate of $284 million and consensus of $290 million. The main variance from our estimate was stronger-than-expected results from the Regulated Utility division, partially offset by weaker-than-expected results from the Renewable Energy division. We note that the Renewable Energy division's generation matched its long-term average. Please refer to Exhibit 1 for additional details. Kentucky Power acquisition anticipated to close in H2/22. Management continues to expect the pending Kentucky Power acquisition to close in H2/22 and did not narrow down the timeframe. On July 1, 2022, the Public Service Commission of West Virginia (WVPSC) issued an order on the Mitchell Agreements that is inconsistent with the Kentucky Public Service Commission's (KPSC) order on the Mitchell Agreements. The closing of the Kentucky Power transaction is subject to the satisfaction of certain conditions precedent, which include those relating to the approval of the Mitchell Agreements by the KPSC, WVPSC and FERC. We note that in late July, AEP indicated that they expect the Kentucky Power transaction to close this summer. Closes RNG acquisition and commissions Canadian wind farm. On August 5, 2022, Algonquin closed the previously announced acquisition of Sandhill Advanced Biofuels, which is a U.S. RNG developer. Management previously indicated that the capital outlay for the acquisition was small. In Canada, the company successfully commissioned its 175 MW Blue Hill wind development (Saskatchewan) April 2022, and the facility sells power to SaskPower under a long-term PPA.