ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $77 and ACO.Y [class II voting] $77; Income Portfolio, Utilities sector; Shares outstanding: 57.5 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.atco.com) gets two-thirds of its earnings from its 52.8% stake in Canadian Utilities (see page 1).
Most of the remainder comes from ATCO Structures & Logistics, which builds temporary buildings for construction companies and energy exploration firms. ATCO owns 75.5% of this business, while Canadian Utilities owns 24.5%. Another subsidiary, ATCO I-Tek, manages computer networks, billing and payment processing for a wide variety of businesses.
ATCO’s revenue rose 12.5%, from $2.9 billion in 2007 to $3.3 billion in 2008, but fell 4.8%, to $3.1 billion, in 2009. Revenue improved to $3.5 billion in 2010, and to $4.0 billion in 2011.
Earnings rose 13.7%, from $249 million, or $4.29 a share, in 2007 to $283.0 million, or $4.89 a share, in 2009. Earnings fell slightly, to $281.0 million, or $4.83 a share, in 2010, but rose to $327.0 million, or $5.65 a share, in 2011.
ATCO is seeing strong growth at its structures business. Earnings at this division rose 20.3% in 2011.
Great value, rising dividend
Companies like ATCO sometimes trade for less than the value of their assets. That’s why you can buy a share of ATCO for $77 and get roughly $81 worth of Canadian Utilities. This means you get ATCO’s structures and other businesses for free.
The stock trades at just 12.2 times the $6.30 a share that the company should earn in 2012. ATCO has raised its dividend each year since 1993. The current rate of $1.31 yields 1.7%. Unlike Canadian Utilities, ATCO does not have a dividend reinvestment plan.
ATCO’s class I (X) non-voting shares are more
liquid than the class II (Y) voting shares.
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