Capharnaum wrote:
dileas48s wrote: I tend to think that a 50% cut in dividend is highly likely, and given other volatility concerns astute buyers will want a yield of no less than 5%. That puts a potential share price at $9.58. That's about where I will start buying.
I agree that AQN and roll up their interest costs into their rates, but that takes rate hearings. It's a long process. Some may have already been underway and can't be revised. Rate hearings mean objectors can weigh in. It could be quite a while before the rates are "right-sized".
Book value is meainingful, but I think it has to be discounted by the intangibles - only count full depreciated hard assets.
Takeover bid? I think it's way too soon for that. Any takeover bid would likely include a premium to share price and I think any potential suitor would want to see prices in the 7's or 8's before that happens.
How much will interest payments rise per month to finance Kentucky?
I think there's a misunderstanding of the public regarding regulated utilities. I'm a bit of a specialist regarding regulated utilities (ie: I've been through multiple rate reviews and have submitted thousands of pages of evidence, been key witness on hearings, etc).
The basis of utilities is that the user base is accountable for all costs incurred to deserve that user base, including the cost of capital of investors, unless costs incurred are unreasonable (ie: reckless). The level of debt is approved by the regulator and thus can't be deemed unreasonable. As to costs incurred that need to be put in future rates, they accrue interests at the average cost of capital until they are, and they can't be denied, they can only be pushed forward (with full interests accrual until they can be "cashed").
As to book value, for utilities it's a good representation because the cost of capital is based on the rate base, and the assets on the balance sheet for the regulated utilty portion should match the rate base. This means that, if AQN was 100% utilities, then trading at book value would result in investors being quasi-guaranteed to get their capital back plus a market-based return, simply because that's what makes utilities work out with "affordable" rates. This is why transactions for utilities usually happen at a multiple of book value; investors get a guaranteed return on the rate base (the assets) and they get full return on future investments (all capex including maintenance). That said, AQN isn't just utilities, they have energy producing assets. On that end, they sold assets at a fairly good premium to book value (+20%) and indicated interest in their other non-utility assets at similar premium during the conference call.
On the take-over side, I don't think it will happen. I would believe that for a negociated take-over, AQN wouldn't accept less than at least 1.5x rate base value for their utilities (recent trading multiple for the kind of utilities they hold are closer to 1.8x) and then they would likely want around 1.2x book value as per their latest transaction for the other assets. As a result, I can't see AQN accepting less than $18 for a negociated take-over. An hostile take-over would face regulatory risks, as the acquirer needs the green light of the regulators to proceed with the acquisitions.
While I'm not one who's attached to dividends (imo dividends are just a form to return capital to investors), I believe that AQN's current game plan is to determine how they can reduce capital spending and how long it will take to get the earnings back on track. If they come up with a workable plan, I don't think they will cut the dividend. Will they be able to achieve such a plan? I think that's why there's a steep discount on the share price right now.