ATCO LTD.(Toronto symbols ACO.X [class I non-voting] $74 and ACO.Y [class II voting] $74; Income Portfolio, Utilities sector; Shares outstanding: 57.7 million; Market cap: $4.3 billion; Priceto- sales ratio: 1.1; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.atco.com) is a holding company. Its main subsidiary is 52.7%-owned Canadian Utilities (see left). It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction companies and energy exploration firms; Canadian Utilities owns the remaining 24.5%.
In the three months ended March 31, 2012, ATCO’s revenue rose 9.1% to $1.1 billion from $1.0 billion a year earlier. That’s mainly because new contracts pushed up revenue at the structures division by 32.2%. Earnings rose 10.0%, to $121 million from $110 million. Earnings per share rose 10.6%, to $2.09 from $1.89, on fewer shares outstanding.
Based on current prices, you can buy a share of ATCO for $74 and get roughly $83 worth of Canadian Utilities. That means you get ATCO’s non-utility businesses for free.
This holding company discount is why ATCO trades at just 11.8 times the $6.27 a share it will probably earn in 2012. ATCO also recently raised its quarterly dividend for the 19th consecutive year. The new annual rate of $1.31 a share yields 1.8%.
ATCO is a buy. The more liquid class I non-voting shares are the better choice.
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