ATCO Ltd.

ATCO Ltd. (TSX: ACO.X) together with its subsidiaries, provides housing, logistics and transportation, agriculture, water, real estate, and energy and energy infrastructure solutions in Canada, Australia, and internationally.

Key Highlights

• An Income Play: ACOx shares are offering a lucrative dividend yield of 4.231% amid a lower interest rate environment with strong track record of dividend payment over past 28-years. A higher yield together with a history of consistent dividend payment will keep ACOx shares in the investor’s limelight amid heightened volatility in the market.

Source: Company presentation

• Diversified Infrastructure Holdings – ATCO’s portfolio focuses on integrated, sustainable solutions in the essential services of shelter, logistics and transportation, agriculture, water, real estate, and energy. The combined portfolio of ATCO positioned it as a defensive bet to play amid heightened volatility.

• Technical Strength: Technical indicators are indicating a positive price movement from the current trading level, with stock moved above its crucial long-term support level of 200-day SMA on the last trading session and hovering above its crucial short-term support level of 50-day SMA. Further, the momentum indicator 14-day RSI hovering in a neutral zone with bullish bias at 56.27.

Technical price chart (as on December 06, 2021). Source: REFINITIV, Analysis by Kalkine Group

Risk Associated to investment: The company’s business is exposed to risk of increase in the input costs, forex risk, lower industrial energy demand offtake, waiver on customer’s energy bills announced by the government.

Financial Highlights: Q3 FY21

Source: Company report

• During the quarter under consideration, revenues for the third quarter of 2021 were CAD 977 million, CAD 80 million higher than the same period in 2020. This was mainly driven by improved performance at ATCO energy resulting from higher electricity and natural gas commodity prices associated with floating rate energy contracts.
• In the Q3FY21, the company’s reported adjusted earnings in the third quarter of 2021 were CAD 69 million or CAD 0.60 per share, compared to CAD 54 million or CAD 0.47 per share for the same period in 2020. The increase in adjusted were mainly due to higher earnings from Canadian Utilities' International Electricity Operations.
• During the quarter total capital investment of CAD 284 million, which was CAD 42 million higher compared to the same period in 2020, mainly due to the acquisition of three solar development projects and the construction of a hydrocarbon storage cavern in Canadian Utilities' Energy Infrastructure segment.
  

Valuation Methodology (Illustrative): PE- based Valuation

Stock recommendation

ATCO continues to expand business with a focus on disciplined capital investment in selected global markets. Moreover, the company is offering a lucrative dividend yield of 4.231%, amid a lower interest rate environment. Additionally, lingering market uncertainties because of the resurgence in the COVID-19 cases, utility business act as defensive bet as revenue and cash flows of these business are quite predictable regardless of the volatility. Hence, based on the above rationale and valuation done, we recommend a “Hold” rating on ACOx stock at the closing price of CAD 42.38 (as on December 06, 2021).

1-Year price chart (as on December 06, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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