TRANSALTA CORP. $22 (Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 218.4 million; Market cap: $4.8 billion; Price-to-sales ratio: 1.7; Dividend yield: 5.3%; SI Rating: Average) operates roughly 80 unregulated power plants in Canada, the U.S. and Australia. Coal-fired plants account for about 57% of the power it generates. Hydroelectric and renewable sources account for 23%, and the remaining 20% comes from natural gas.
In November 2009, TransAlta paid $755 million for Canadian Hydro Developers Inc., which owns and operates 21 power-generating facilities in Alberta, B.C., Ontario and Quebec. These include 12 hydroelectric plants, eight wind farms and one biomass plant, which generates power by burning plant materials and wood waste from lumber mills. Adding Canadian Hydro will help TransAlta comply with the tougher environmental regulations that will likely come into force over the next few years.
To help pay for this purchase, TransAlta raised $412.5 million by selling 20.5 million common shares for $20.10 each. That increased the total number of shares outstanding by 10%.
In 2009, earnings fell 37.6%, to $181 million from $290 million in 2008. Earnings per share fell 38.4%, to $0.90 from $1.46, on more shares outstanding. These figures exclude unusual items. Revenue fell 10.9%, to $2.8 billion from $3.1 billion. Lower power prices and unplanned outages at some Alberta plants were the main reasons for the declines.
The stock trades at 17.6 times its likely 2010 earnings of $1.25 a share. That’s a higher p/e ratio than other power utilities, but still reasonable as recent repairs will improve the reliability of its plants.
TransAlta is a buy.
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