TransAlta Corp

TransAlta (TSX: TA) is an Alberta-based independent electricity producer. It has more than 70 power facilities in Canada, the Western United States, and Australia. About two-thirds of its net generating capacity is coal or natural gas-fired. Hydroelectric plants and wind energy farms make up the remaining one-third of the total.

Why Should Investors Sell the Stock?

• Lower performance on Y-o-Y basis: The company's performance in the first quarter of 2021 was inferior compared to the previous corresponding period (pcp). It had a gross profit of CAD 349 million in Q1 2021, down from CAD 368 million in pcp. Operating income stood at CAD 67 million, down by 47% from CAD 126 million, and net profitability came at CAD 1 million compared to CAD 44 million.

• Production fell by 15%: In Q1 2021, the firm produced 5,541 GWh, compared to 6,486 GWh in Q1 2020. The drop in output was largely attributable to portfolio rationalization, reduced adjusted availability, and the retirement of Unit 1 in the Centralia segment. Adjusted availability dropped to 88.6% in the reporting period, compared to 92.8% in pcp.

• Lower operating margins V/s Industry: The Company failed on maintaining its pace and witnessed lower performance across its operating margin matrix against the industry, which exhibits the pressure on company.

• Trading above the upper band of the Bollinger Bands®: The stock witnessed a healthy rally on the daily price chart in FY2021 and recently, it has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~72.14 levels, also indicating the stock is in overbought zone and there is possibility of price consolidation.

Source: REFINITIV, Analysis by Kalkine Group      

Valuation Methodology Illustrative: EV to Sales      

Stock recommendation

The company’s Q1 2021, results were ahead of the expectations of the management. Thanks to the strong performance led by its Alberta Hydro fleet as it experienced the first few months of fully merchant operations, which helped the company to post the net profit. Compared to Q1 2020, the company posted lower performance in its operating matrix as the production fell by 15% to 5,541 GWh. Moreover, it witnessed lower performance across its operating margin matrix against the industry, which exhibits the pressure on company. Furthermore, on technical aspects, the stock is trading in overbought zone and there is possibility of price consolidation. Therefore, based on the above rationale, we recommend a “Sell” rating on the stock at the closing price of CAD 12.85 on July 29, 2021.

One-Year Technical Price Chart (as on July 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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.