Algonquin Power & Utilities Corp

Algonquin Power & Utilities Corp (NYSE: AQN), is a North American generation, transmission, and distribution utility. Within its distribution group, Algonquin owns and operates regulated water, natural gas, and electricity distribution utilities in the United States.

Key Highlights

• Steady dividend distribution: The group has reported a stable dividend payment over the years, aided by stable cash flows from resilient operations. Recently, the group paid a quarterly dividend of USD 0.1551 per share on its common shares. Since the company provides essential services like energy, the operations of the group are immune to the economic cycle, and hence, we expect the stability in cash flow generation and dividend payment in the foreseeable future.

• Impressive Guidance: For FY21, the group expects its adjusted net earnings per share within the range of USD 0.71 to USD 0.76, representing an annual growth of 8% to 10%. Moreover, the management expects a 10% growth in its annualized dividend. Furthermore, the management believes that they are well positioned to capitalize on the global growth of infrastructure investments and renewable energy as they will be having a capital expenditure of USD 9.4 billion for the period from 2021 through 2025.

• Acquiring wind power facilities from RWE Renewables: Recently, the company has entered into an agreement to acquire a 51% interest in a portfolio of four wind facilities from RWE Renewables, a subsidiary of the RWE Group, with an aggregate capacity of 861 MW, located in the coastal region of south Texas. Two wind facilities, representing 421 MW of the total portfolio, have already achieved commercial operations, while the two remaining wind facilities are expected to achieve commercial operations in early 2021.

• Event update: The company will be releasing its fourth quarter and full year 2020 financial results on Thursday, March 4, 2021, after market close.

Financial overview of Q3 2020

Source: Company

• AQN announced its quarterly results, wherein the group posted revenue of USD 376.115 million, slightly higher than USD 365.566 million in Q3FY19. Despite a change in consumption patterns of residential, commercial and industrial customers across all the business segments, the group managed to retain its top line.
• Operating income stood at USD 94.876 million, higher than USD 84.265 million in the previous corresponding period (pcp). The increase was driven by higher income and lower regulated electricity purchased and a decline in administrative expense, partially offset by an increase in regulated gas purchased and higher depreciation and amortization.
• Adjusted EBITDA increased by 6% y-o-y to USD 197.9 million, supported by an income tax recovery amounting USD 19.7 million, as compared to an income tax expense of USD 22 million in Q3FY19.
• The company reported net earnings of USD 47.322 million, significantly lower than USD 111.386 million in pcp, due to an income from long-term investments amounting USD 90.055 million in pcp, as compared to a loss of USD 2.701 million in Q3FY20.
• Cash and cash equivalent stood at USD 318.164 million, while total assets were recorded at USD 11,739.94 million.

Risks associated with investment

Change in the consumption pattern of the residential and industrial customers due to the ongoing slowdown and closure of several industrial segments might lead to lower operating performance. 

Valuation Methodology (Illustrative): EV to EBITDA

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The group reported higher operating margin and net margin of 24.5% and 12.6%, respectively during Q3FY20, as compared to the industry median of 22.4% and 12.6%, respectively, which looks impressive considering the current economic cycle. The company also holds a decent track record of dividend payment, which shows the stable cash flow generating capabilities. Furthermore, the utility segment is likely to remain stable in the coming quarters, as the sector is categorized under "essentials" and the business expects to benefit from the improved realization prices. We have values the stock using EV to EBITDA based valuation multiple and arrived at a low single digit (in % terms) downside potential. Hence, we recommend a "Watch" rating at the closing price of USD 17.34 on February 18, 2021. We have considered CMS Energy Corp, Sempra Energy, etc. as a peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

CLPS Incorporation 

CLPS Incorporation (NASDAQ: CLPS) is a global leading information technology, consulting and solutions service provider. The company has clients from the global financial industry, which includes large financial institutions in the US, Europe, Australia, Southeast Asia and Hong Kong, and their PRC-based IT centers.

Key Highlights:

• Recently, the group signed a vendor agreement with a well-known U.S. digital payment platform wherein the company would provide IT services, which includes data analysis and payment risk management for the company’s international business. The group has marked its presence beyond Mainland China market, and currently witnessing strong demand for IT services outside the Mainland China.
• On February 08, 2021, the group has signed an agreement with a large U.S. e-commerce platform, wherein the company would provide IT services, including big data management for the client's cross-border e-commerce system. Earlier, the company has entered into e-commerce segment through its strategic investment in Shanghai Shier Information Technology Co., Ltd (SSIT).  The above company has products like"Group Store" and "Duoshouji" and works for more than ten leading e-commerce companies, and also caters to more than hundreds of brands in China and has more than 100,000 registered users. 

FY20 Financial Highlights:

• For FY20, the company reported a revenue of USD 89.415 million, higher than USD 64.932 million in FY19.
• Gross profit was recorded at USD 31.119 million, as compared to USD 23.754 million in FY19.
• Total operating expenses stood higher at USD 29.840 million, higher than USD 27.542 million in FY19, due to a significant increase in the research and development expenses and higher selling and marketing expenses, partially offset by a slide in general and administrative expenses.
• The group reported net income of USD 2.938 million, as compared to a loss of USD 3.269 million in FY19.
• The company reported cash and cash equivalents of USD 12.652 million, while total assets were recorded at USD 45.352 million.

FY20 Income Statement Highlights (Source: Company Reports)

Risks: The operations may be hindered due to the loss of any client, change in consumer preferences and entry of new clients within the industry with aggressive product-pricing.

Stock Recommendation:

The company is expanding its business presence and reported growth in the number of employees, enhanced its geographical presence, and is looking for new offices and sales and delivery centers. The above expansion plan requires huge capital investments. Any loss of clients might hinder the income generation capacity, which might impact the overall performance also. The stock soared ~120% on February 17, 2021 on the news of signing an agreement with a well known US digital payment platform. Since then, it has corrected 14%. We expect further consolidation in the price. On the valuation front, the stock is available at a EV to EBITDA Multiple of 109x (TTM), which is significantly higher than the industry average of 51.2x. Hence, we recommend an ‘Avoid’ rating on the stock at the closing price of USD 9.30 on February 18, 2020.

CLPS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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