RE:CIBC Revises Target and Rating.Happy Canada Day,
Far from being an equal opportunity ALA basher, what I have been trying to interject into the (mostly) one-sided ALA-pumper discourse on this board is a presentation of some legitimate issues that still present hurdles for future appreciation of the ALA stock price. The passage below, from the aforementioned recent CIBC report, captures the message that I was attempting to convey in some of my earlier posts....
Neither One Thing Nor The Other?
ALA shares have materially lagged since the acquisition of WGL was announced
(January 25, 2017), down 11% vs. pipeline and midstream peers down 4%. We had
expected the stock to lag peers during the regulatory review process, based on
the experiences of prior utility M&A transactions; however, we have been
surprised by the depth and duration of the underperformance.
We attribute this in a large part to the risk associated with the funding plan to repay the bridge
loan, but also believe the high proportion of utility assets in the business mix
may challenge classification of the stock—neither midstream nor utility. On
average, pipeline and midstream shares trade at 22.4x our 2019E earnings
compared to utility shares trading at 16x earnings and ALA shares at 18.2x. While
we believe the business mix should normalize over time consistent with the
company’s objectives, the targeted weighting could imply a modestly higher P/E
multiple over time based on a sum-of-the-parts valuation, but the onus is on
management to achieve that mix.