Markets

Capital Power Corp Slightly Lower as Credit Suisse Analyzes Clover Bar Conundrum

Credit Suisse has reiterated an Outperform rating and $30 target price on Capital Power Corporation (CPX.TO) after its Q1 result.

Earnings review: "Capital Power Corporation reported headline Q1 2011 EPS of C$0.06 and normalized EPS of C$0.33. The normalized figure beat our C$0.25 estimate, the Street's C$0.306 view and fell within the C$0.24-C$0.39 range. Positively, CPX stated "[i]f forecasted Alberta power prices remain in the low-$60/MWh for the balance of the year, we expect our normalized earnings per share to be approximately $1.40." In light of some of the potential negative issues associated with CPX's trading book (roughly a negative C$0.11/sh impact) and the Clover Bar Unit 3 outage, we view the results positively. Given the long-cycle nature of most of our coverage universe, we do not place undue emphasis on quarterly results."

Selected highlights: "Some areas of interest include: (a) Q1 average plant availability was 93%; (b) the company is roughly 64% contracted for the rest of 2011 at low-C$60s/MWh and approximately 35% in 2012 at prices in the mid-C$60s/MWh; (c) Q1 2011 production 3,590GWh versus Q1 2010 at 3,529GWh; (d) Q1 2011 Alberta average price was C$64/MWh which is lower than the Q1 2010 of C$67/MWh; and, (e) CPX expects 2011 EBIT of between C$34m-C$38m for the newly acquired New England generation facilities."

Investment thesis: "CPX's financial fortunes are substantially tied to power pricing in Alberta in 2011 and beyond. Over the longer-term, we view CPX as well positioned for ongoing capacity growth. We anticipate CPX to growth with a balanced combination of acquisitions and organic developments."

Valuation: "Our Outperform rating and C$30.00 target price is obtained from multiple approaches, including: a 17.0x P/E multiple on our 2012 estimate; a target dividend yield of 4.2%; an adjusted 9.0x EV/EBITDA multiple; and, a discounted cash flow. We reiterate our Outperform rating."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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