Avista Corporation

AVA Details

Avista Corporation (NYSE: AVA) is engaged in the production, transmission, and distribution of energy as well as other energy-related businesses. Avista Utilities is the operating division that provides electricity to nearly 340,000 customers and natural gas to about 300,000 customers across 30,000 square miles and four north-western states. Alaska Energy and Resources Company provides retail electric service in the city and borough of Juneau through its subsidiary Alaska Electric Light and Power Company. The company has a market capitalization of ~US$3.3 billion as on 26^th March 2021.

Result Performance – For the Year Ended 31 December 2020

For the year ended 31 December 2020, total operating revenues decreased marginally by 1.8% to $1,321.9 million from $1,345.6 million in the corresponding period last year. The fall in revenue was mainly led by decrease in non-utility revenue which fell by 87.1% to $1.6 million from $12.5 million in FY19, followed by a fall in total utility revenue by 1.0% to $1,320.3 million from $1,333.1 million in FY19. Further, net income attributable to the company’s shareholders reported at $129.5 million, or $1.90 per diluted share in FY20, compared to $196.9 million, or $2.97 per diluted share in FY19.

Key Data (Source: Company Reports)

Recent Updates

As per the release dated 29 January 2021, the company has filed a request with the Idaho Public Utilities Commission due to capital investments in infrastructure, system maintenance, wildfire resiliency measures, and increased power supply costs. If the two-year rate plan is approved, a Tax customer credit would allow the company to recover capital costs with little to no impact to customer bills.

On 4 February 2021, the company declared the quarterly dividend of $0.4225 per share, a rise of $0.0175 per share (4.3%), yielding and annualized dividend of $1.69. 

As per the release dated 23 February 2021, the company is named as one of the 2021 World’s Most Ethical Companies by Ethisphere for the second time

As per the release dated 10 March 2021, Sena Kwawu, has been nominated to join the board of directors. Mr. Kwawu would be standing for the election by the shareholders and, if elected, would be joining the board effective May 11, 2021.

Outlook:

The company continues to provide dividend to its shareholders from $1.37 per share in 2016 to $1.69 per share in 2021, representing an annual dividend growth of 4% to 5% over 2016-2021. This indicates the financial stability of the company in past and prospects of dividend pay-out in future periods, based on financial performance. As of 31^st December 2020, the company had $270 million of available liquidity under $400 million line of credit and for 2021, the company expects to issue about $120 million of long-term debt and $75 million of equity.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:  

Weekly Chart

(Source: Refinitiv (Thomson Reuters))

Note: The purple color line in the chart depicts RSI (14-period) and the green color indicates 21-period SMA. The yellow color line represents trend line.

AVA stock price has shown robust bull move from the low of US$ 36.68 on February 2021 and recently made a high of US$ 48.28 level (on 26 March 2021) and delivered a gain of ~32 percent in this one month. On the weekly chart, the stock has a breakout of its horizontal trend line at US$ 46.10 level. Looking at current chart pattern, prices are approaching towards the horizontal trend line resistance zone of US$ 53.04 level. However, the momentum oscillator RSI (14-period) is trading at ~74 levels near to overbought zone, a correction from here may drift the price lower towards the support level. An important support level for the stock, is placed at US$ 46, while the key resistance level is placed at US$ 53.04.

Stock Recommendation:

The company is consistent in posting EBITDA margin in the range of ~32%-35% over 2016-2020. The company is focused to invest in the utility infrastructure.

The stock has witnessed a rise of ~19.4% in 3 months and over the last 6 months, it has increased by ~41.5%. In line with this, the stock reported an increase of ~36.04% in 9 months and ~18.0% in 1 year. The stock has a 52-week low and high of US$32.26 and US$48.09, respectively and is trading close to its 52-week high.

Considering the aforesaid facts, we have valued the stock using an EV/Sales multiple-based illustrative relative valuation and there are expectations that the stock price might witness a fall of high single-digit (in % terms).

We believe the company can trade at a slight discount to its peer EV/Sales (NTM Trading multiple) considering higher cash conversion cycle, lower ROE in FY20 versus FY19, and persistent risk in the energy segment.

Considering the aforesaid facts, we give a “Sell” recommendation on the stock at the current market price of US$48.27 per share, up 0.67% on 26^th March 2021.

AVA Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

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