Algonquin Power & Utilities Corp. (TSX: AQN) is a Canada-based diversified international generation, transmission and distribution utility company. The Company through its two business groups, the Regulated Services Group and the Renewable Energy Group, provides sustainable energy and water solutions through its portfolio of electric generation, transmission and distribution utility investments to approximately one million customer connections in the United States and Canada. 

Key Highlights

• Strong Q1 2022 performance: The company reported decent performance in the Q1 2022, where its revenue surged by 16% to USD 735.6 million compared to the Q1 2021. Operating income got boost by 60% to USD 137.7 million and net earnings attributable to shareholders rose phenomenally by 554% to USD 90.9 million on a YoY basis. The increase in these figures was mostly due to strong performance from all categories, particularly wind power in both the United States and Canada.

• Elevated adjusted funds from operations: The company's adjusted funds from operations increased by 7% to USD 220.2 million in the reporting period of Q1 2022, compared to USD 205.3 million in the previous equivalent quarter. The rise was mostly attributable to increased cash from operating activities and lower non-cash operating expenditures.
• Big Capex plans: From 2022 to the end of 2026, the Company has announced a capital investment plan of approximately USD 12.4 billion, consisting of approximately USD 8.8 billion of anticipated investments by its Regulated Services Group and nearly USD 3.6 billion of anticipated investments by its Renewable Energy Group. The bulk of the projects listed are either operational or in advanced phases of development, implying that fresh cash flows will be accessible soon.

• An Income play: The Company has a good dividend distribution track record and has grown its payment over the years, demonstrating stability and robust cash flow creation. This dividend pay-out technique is critical for regular income-seeking investors with a long-term view. The Company has approved an increase in the common share dividend to USD 0.1808 per quarter and announced a dividend of USD 0.1808 per common share payable on July 14, 2022, for the second quarter of 2022. Furthermore, at the last closing price of CAD 18.20, the company offers a strong dividend yield of 5.175%.

• Issuance of Subordinated Notes: The corporation is focused on maintaining strong liquidity and recently completed an underwritten public offering in the United States and Canada for a total of USD 1.1 billion. The Company intends to use the net proceeds of the Note Offerings to partially finance the Kentucky Power Transaction, provided that such net proceeds have been used to repay certain indebtedness of the Corporation and its subsidiaries.

• Consistently improving liquidity: The Company maintained its pace and had strong success across all liquidity ratios. Cash flow from operations is the company's primary source of liquidity. The group is consistently improving its liquidity profile, and in Q1 2022, it outperformed the industry in terms of liquidity.

Source: REFINITIV, Analysis by Kalkine Group

• Integrating Liberty New York Water: The previously announced acquisition of New York American Water Company, Inc. for about USD 609 million was completed on January 1, 2022. The transition and integration are going well, and the Company is continuing to provide safe and dependable water service to its consumers in New York.

Risks Associated to Investment

Several risks and uncertainties are faced by the firm. A rise in COVID-19 cases might cause delays, interruptions, and cost overruns in the group's operations, supply chain, and project development & construction, as well as delayed collection of accounts receivable and elevated levels of bad debt costs. Furthermore, the functional currency of the majority of AQN's activities is the US dollar; nonetheless, AQN is vulnerable to currency changes due to its Canadian and Chilean businesses.

Financial overview of Q1 2022

Source: Company Filing

• Rise in revenue: In Q1 2022, The company reported total revenue increased to USD 735.6 million compared to USD 634.5 million in Q1 2021. An increase in the revenue was primarily due to healthy performance from all the segments, especially from wind power segment in both the U.S and the Canadian region. The performance from the regulated electricity distribution was on the lower side.
• Slight increase in expenses: In Q1 2022, the company’s expenses stood slightly higher at USD 599.1 million, against USD 548.4 million in pcp. An increase was mainly due to rise in regulated gas purchase.
• Elevated operating income: The company clocked elevated operating income in Q1 2022, at USD 137.7 million, compared to USD 86.0 million in pcp.
• Enormous rise in net income: In the reported period of Q1 2022, the group net income attributable to shareholders increase enormously to USD 90.9 million, against USD 13.9 million in pcp, mainly on the back of net income from the non-controlling interest entities.

Top-10 Shareholders

The top 10 shareholders have been highlighted in the table, which forms around 21.43% of the total shareholding. RBC Dominion Securities, Inc. and The Vanguard Group, Inc. hold the company's maximum interests at 3.44% and 3.33%, respectively. The company's institutional ownership stood at 42.34%. Higher institutional holding boosts the confidence in the mind of retail investors. 

Valuation Methodology (Illustrative): EV to Sales based Valuation Metrics

Stock recommendation 

The Company's diverse and robust business strategy led them to generate exceptional Q1 2022 financial results, with remarkable topline and bottom-line growth. Furthermore, the Company is dedicated to deliver long-term growth and operational excellence through an expanding global pipeline of renewable energy and electric transmission development projects, as well as organic growth in its rate-regulated generation, distribution, and transmission businesses.

The group is committed to deliver a USD 12.4 billion capital plan from 2022 to 2026 to generate profits and cash flow growth, which we anticipate will underpin appealing returns for shareholders. In addition, as a result of strong Q1 2022 numbers the company increased its quarterly common share dividend by 6% to USD 0.1808 per common share, and at the last closing price of CAD 18.20, the stock offers a healthy dividend yield of 5.175%, which is an important factor for regular income-seeking investors with a long-term horizon.

Hence, considering all above discussed rationales we recommend a ‘Buy’ rating on the AQN stock at the last closing price of CAD 18.20 as on May 13, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on May 13, 2022). Source: REFINITIV, Analysis by Kalkine Group

*Recommendation is valid on May 16, 2022, price as well. 

Technical Analysis Summary

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.