Investor meetingAlgonquin Power & Utilities (AQN) Meeting Notes
• AQN reaffirmed its power asset sale is progressing as planned with an announcement expected by mid-year and closing around year end.
• AQN was non-committal on what happens with excess proceeds from the sale after repaying debt to reduce floating rate exposure and getting onside with credit metrics. Interestingly the company noted it believes its FFO/Debt threshold from the rating agencies will drop from 14% to 11%-13% given a lower-risk utility portfolio, and AQN would like a buffer and thus might target 13.0%-13.5%. Further, the company indicated some of the power company holding company (APCo) debt could be ported if the buyer were investment grade.
• The company is not yet able/willing to say if it would have excess capital to put towards a buyback as it needs to weight future funding costs and determine what debt has to be paid back. AQN could sit on cash given it will have an elevated payout ratio (thus little retained cash for growth) and, with a weaker trade multiple, doesn’t want to have to access the equity markets any time soon.
• AQN remains committed to improving the earnings of its regulated utilities and suggested historically it has achieved a 50% success rate on revenue/rate increases. Recall, AQN has $130 million of revenue increases in pending rate cases (could increase if AQN files for new rates in Missouri), implying $65 million of earnings uplift; we would have assumed closer to a 60%-70% success rate. AQN noted it might eventually consider disposing of non-core utilities but that’s not in the cards yet.
• We still believe that post asset sales, AQN will have a higher payout ratio (~85%-95%). Consequently, investors wonder if AQN should cut the dividend again—management reiterated its prior message that it can live with a higher payout which will eventually moderate as EPS growth comes in the next few years.
• We still view AQN as show-me story and investor interest is lukewarm.