p>ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $76 and ACO.Y [class II voting] $76; Income Portfolio, Utilities sector; Shares outstanding: 57.6 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.atco.com) is a holding company. Its main subsidiary is 52.7%-owned Canadian Utilities (see page 103). 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 June 30, 2012, ATCO’s revenue rose 11.9% to $987 million from $882 million a year earlier. That’s because its structures division won a number of new contracts, and it recently purchased a gas-distribution business in Australia. Earnings rose 21.3%, to $74 million, or $1.28 a share, from $61 million, or $1.07.
Companies like ATCO sometimes trade for less than the value of their assets. Investors call this a “holding company discount.” That’s why you can buy a share of ATCO for $76 and get roughly $79 worth of Canadian Utilities. That means you get ATCO’s non-utility businesses, which provide a third of its earnings, for free.
ATCO trades at just 12.2 times the $6.22 a share that it should earn in 2012. The $1.31 dividend yields 1.7%.
ATCO is a buy. The more liquid class I non-voting shares are the better choice.
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