I’m going to talk about the Canadian election results in a subsequent post. Something more mundane here.
Altagas Canada (TSX: ACI) was spun off from Altagas (TSX: ALA) in the depths of ALA’s de-leveraging attempts. Unfortunately, this was my worst “miss” that I never invested in, because of my normal policies which go against investing in initial public offerings. Altagas went public at $15 in October 2018 and I was intending on buying shares when it inevitably dropped to $12 (if I was going to buy a new public offering, why would I pay face value?), but it never got there. Sadly, my parsimonious nature got the better of me.
There is a second rule which I should have remembered: If a company goes public as a result of a forced de-leveraging or firesale, it probably is worth a consideration beyond that of a more standard IPO. Another IPO that fit this description was Genworth MI, which was spun off from Genworth Financial (NYSE: GNW) for deleveraging purposes. They do not happen very often, but when they do, you get gains like what happened with ACI.
ACI received a buyout offer from the Federal public pension board and the Albertan pension plan for CAD$33.50/share, so if I had just sucked it up and bought shares on IPO day at $14.53, I’d be sitting on a 130% gainer in the span of a year, not factoring in the $1.04 dividend. Oh well!
In terms of valuation, the pension plans are buying for a billion in cash a company that also has net $640 million in debt on the balance sheet. At an EV of $1.6 billion compared to 2018 operating cash flow of $90 million (not even factoring in capital expenditures), this isn’t the cheapest acquisition on the planet. It’s easy to see why they agreed to be bought out, and also why I wasn’t interested in them for $25/share either!
This, however, does show that pension boards are looking for cash flowing assets to park their capital into. Looking at Atlantic Power (TSX: ATP) anybody?
[…] to raise money for Genworth Financial post-economic crisis, and AltaGas Canada (TSX: ACI) which I already wrote about being one of my worst misses that I did not take a stake […]