Buoyed by Ontario’s move to rid itself of coal-fired power, the Alberta government announced a similar plan in 2015. All power produced in the province would have to come from green sources by 2030.
Naturally, coal-fired power operators in Alberta got whacked. Capital Power Corp (TSX:CPX) was among the casualties. Shares fell as low as $16 each in late 2015. 2016 was much better, and the company’s shares recently surpassed $25 here in early 2017.
Even after rallying that much from the bottom, Capital Power is still cheap.
The company is a free cash-flow machine. It is projected to generate $280 million in free cash flow for 2016, versus a market cap of $2.44 billion. That gives it a price-to-free cash flow ratio of just 8.7 times.
Free cash flow should go up next year as well, thanks to the Alberta government giving Capital Power $52.4 million each year (until 2030) as compensation for stranding its coal-fired assets.
Shares also trade slightly under book value, which is stated at $27.65 per share. Management took advantage of the negative sentiment by repurchasing 3.5 million shares far under book value in the last year.
Capital Power also pays one of the most attractive dividends in the sector today, with the yield coming in at 6.2%. The payout ratio is less than 50% of free cash flow. It’s as secure as dividends get. In fact, Capital Power has hiked its dividend each of the last three years.
Shares aren’t quite as cheap as they were a few months ago, but they’re still one of the best bargains in the sector today.
