Updated: January 15, 2023 at 2:15 p.m
Arun Banskota, President and CEO of Algonquin Power & Utilities Corp. (Photo submitted)
The arrival of the weekend may have halted Algonquin Power & Utilities Corp’s slide. after shares in the parent company of Bermuda’s sole electricity supplier, Belco, experienced two price drops on Thursday and Friday.
Analysts downgraded the stock, which trades under the ticker symbol AQN on the New York Stock Exchange, and it fell 6.6 percent in Friday trading, extending Thursday’s 3.6 percent slide in U.S. stocks.
The market appears to be reacting to corporate action by the Canada-based diversified international generation, transmission and distribution company which cut its dividend by 40 percent and issued below-consensus 2023 earnings guidance.
Effective for its Q1 2023 dividend (expected to be paid in April 2023), AQN intends to reduce its quarterly dividend from $0.1808 to $0.1085 per common share.
The company will pursue the acquisition of Kentucky Power, its latest takeover target.
AQN intends to refocus its portfolio by targeting approximately $1 billion in additional asset sales. Proceeds from the next phase of renewable asset recycling and additional asset sales are expected to be used to repay debt and continue to finance growth.
The company is also suspending its dividend reinvestment plan for its common stock.
Algonquin said Thursday from its offices in Oakville, Ont., that it must address the challenges facing the business.
Regarding the investor news, the statement states that decisive actions are being taken to strengthen the financial and strategic position.
This includes taking steps to realign capital allocation, reduce capital expenditures, refocus the portfolio and reduce the dividend to position the company for sustainable, long-term growth.
President and CEO Arun Banskota said, “We remain committed to our long-term energy transition strategy, including the continued acquisition of Kentucky Power, which we expect will add to our rate base, enhance customer relationships and provide further decarbonization opportunities.
“Our track record of operational excellence and portfolio of high-quality assets in our regulated and renewable businesses, together with the actions we are announcing today, are expected to enable the company to capitalize on industry tailwinds and create significant shareholder value.
“Moving forward, this stronger financial foundation is expected to position the company to maintain its BBB credit rating, sustainably increase its dividend, reduce equity capital requirements and deliver solid underlying growth across both businesses.”
Desjardins analyst Brent Stadler downgraded the stock to ‘sell’ from ‘hold’ with a $7 price target, down from $10, saying it “struggles to make a compelling case for owning the name based on fundamentals.”
“2023 guidance was well below expectations, headwinds are expected through 2025 with very little earnings growth (unless successful with KP rate cases) and we believe the current valuation is fair,” Mr Stadler said in his second reduction of the share rating in the last two months.
Looking for Alphaa mass content service for financial markets, said the company’s clearest path to earnings growth is if the company completes its acquisition of Kentucky Power assets and successfully implements rate cases.
Algonquin Power & Utilities Corp. completed the acquisition of Bermuda Electric Light Company Limited in November 2020 for $365 million.