Algonquin Power & Utilities Corp T.AQN

cibc analyst: Price Target (12-18 mos.): US$7.50

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CEO Decision Brings More Clarity & Could Be Close To Power Business Sale Announcement (Maybe AY Sale Too)

Our Conclusion
Clarity on the CEO position this quarter (interim becomes permanent) and growing expectations of an announcement on the renewable business sale within the next three months, as well as a potential sale of AQN’s AY stake, could bring more clarity, simplicity and stability this year. That said, the outlook for the pro forma business is not stellar as AQN has to improve the performance of its regulated utilities and likely has an elevated payout. We’ve made minimal estimate changes and our price target stays at $7.50. AQN remains Neutral rated.

Key Points

Huskilson Gets Permanent CEO Nod. After nine months as interim CEO and a search for other candidates, Chris Huskilson gets the job permanently. Mention of CEO succession planning in the Q1 release raised the question if Chris would have a shorter tenure, but AQN indicated that reference meant grooming some internal talent (or planned additions) for an eventual succession. For now, Chris will continue on the path ahead and provides a calming, experienced person to lead AQN through its transition phase. We view this appointment as neutral to our outlook for AQN.

Confident Tone On Asset Sales & AY Sale Prospects Resurrected. AQN’s management reiterated it expects a sale announcement by mid-year with closing by year end. Subsequent to the conference call, PeakLoad reported AQN expects final bids this month, which supports AQN’s comments. In our view, there’s still skepticism by many investors that AQN can fetch an attractive valuation and a deal at ≥10x EV/EBITDA could be viewed positively. Net proceeds are arguably more important than the announced multiple as that will determine how AQN will be positioned on growth and potentially pursue buybacks, with AQN hopefully providing an update later this year. Further, the potential sale of AQN’s stake in AY has resurfaced as a potential near-term opportunity as we highlighted in a recent report (link). While AQN might not receive great value for its AY shares, it’s balanced against simplifying the story, worrying about an AY dividend cut and having proceeds to buy back its own shares.

Utility Earnings Uplift Still A Few Quarters Away. AQN is still working through rate case and ERP implementation (takes time on cost recovery and productivity gains) which temper our view on Y/Y growth through 2024. More material improvements on utility earnings likely start to materialize in 2025, when AQN might be able to more aggressively invest in growth opportunities once it addresses its balance sheet from asset sales this year.

Estimates & Valuation. Our 2024 and 2025 Adj. EPS estimates are effectively unchanged. Our sum-of-the-parts based target approach (P/E for utilities; DCF for power) stays at $7.50. AQN currently trades at 12.6x consensus 2025 EPS vs. North American peers at ~16.0x. EQUITY RESEARCH May 12, 2024 Earnings Update ALGONQUIN POWER & UTILITIES CORP. C

[stocktalk]

Sale will go through, green energy is out, Aqn will be a safe basic utility company.