Algonquin Power & Utilities Corp T.AQN

RBC Increases Target To $6

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PRICE TARGET REVISION | COMMENT

MARCH 7, 2011

Algonquin Power and Utilities Corp. (TSX: AQN)

Good Q4 Results and Attractive Growth Opportunities;

Raising Price Target

Outperform

Average Risk

Price: 5.30

Shares O/S (MM): 104.0

Dividend: 0.26

Float (MM): 95.5

Price Target: 6.00 ­ 5.50

Implied All-In Return: 18%

Market Cap (MM): 551

Yield: 4.9%

Strategic Ownership: Emera Inc. (8%)

Event

Algonquin Power and Utilities reported Q4/10 results.

Investment Opinion

• Strong Q4 Results. Algonquin's CFPS for Q4/10 was
.13 compared to our

estimate of
.12, and
.11 in Q4/09. The renewable energy division reported

stronger-than-expected results (generation levels in line with the long-term

average), partially offset by weaker-than-expected contribution from the

thermal energy division (weak results from Windsor Locks) and higher

administrative costs (non-recurring costs relating to restructuring Liberty

Water).

• 8% Dividend Increase. The company increased the annualized dividend to

.26/share (from
.24/share). The increase was in line with our expectation,

but we had assumed that the announcement would take place mid-year after

seeing a few quarters of contribution from the CalPECo acquisition. We also

expect a similar
.02/share dividend increase in early 2012.

• Attractive Dividend Coupled with Organic Growth and Accretive

Acquisition Opportunities. We believe the shares of Algonquin are attractive,

currently paying a 5% yield. Algonquin has also demonstrated that it can grow

organically and through accretive acquisitions. Algonquin closed the CalPECo

acquisition on January 1, 2011, and expects to close the acquisition of New

Hampshire utility assets in the fall of 2011. The company was also recently

awarded PPAs to develop a 75 MW wind farm on Amherst Island (Ontario)

and two wind parks totalling 48 MW (JV with municipalities) in Quebec.

• Modestly Increasing Estimates. We have marginally increased our 2011 and

2012 CFPS estimate to
.68 and
.81, respectively (from
.67 and
.80) to

reflect higher forecast contribution from the renewable energy division.

• Increasing Price Target to $6.00 (from $5.50). Our price target increase

reflects an increase to our forecast EBITDA for the renewable energy division

as well as our assumption that the company will successfully deploy $350

million (up from 250 million) of capital over the next three years. We believe

our assumption is reasonable as Algonquin’s Amherst Island wind project alone

has an estimated project cost of $220 million. Our price target is based on a

sum-of-the-parts analysis that separately values Algonquin’s various business

segments, which imply a 9.5x 2012E EBITDA.