Morningstar | TransAlta Reports In-Line 2018 Results; Management Touts Upside of Hydro Plants
We are reaffirming our CAD 7.30 per share fair value estimate after TransAlta reported 2018 comparable EBITDA of CAD 1.123 billion, in line with our estimate of CAD 1.107 billion.Excluding the CAD 157 million payment related to the early termination of power purchase agreements for Sundance units B and C, adjusted comparable EBITDA in 2018 was CAD 966 million, down 6% from CAD 1.028 billion in 2017. Adjusted comparable EBITDA in 2017 excludes a CAD 34 million settlement payment related to a dispute with the Ontario Electrical Financial Corp.
TransAlta’s Canadian hydro and natural gas fleets provided strong segment performance versus 2017. Adjusted comparable EBITDA increased by CAD 11 million, to CAD 120 million, for the hydro segment and CAD 30 million, to CAD 259 million, for the Canadian gas segment. However, these positive variances were more than offset by the weaker performance from U.S. and Canadian coal and Australian gas segments. The performance of the wind and solar business segment was flat versus 2017.
TransAlta provided additional disclosure on the performance of its hydro plants, arguing that their true earning power is partially hidden by the benefit of obligations under existing PPAs with the Alberta Balancing Pool that reduced comparable EBITDA by CAD 135 million last year. These PPAs expire on Dec. 31, 2020.
More than five years ago, TransAlta made similar arguments that its Canadian coal plants had upside when its PPAs expired beginning in 2018. Although TransAlta received early termination payments, they were less than the potential upside management once touted.
TransAlta and its subsidiaries are engaged in the production and sale of electric energy. Co. has 3 segments: the Generation segment which owns and operates hydro, wind, geothermal, biomass, natural gas and coal-fired facilities, and mining operations; the Energy Trading segment which is engaged in the wholesale trading of electricity ; and the Corporate segment which provides finance, tax, treasury, legal, regulatory, environmental, health and safety, sustainable development, corporate communications, government and investor relations, information technology, risk management, human resources, internal audit, and other administrative support to the Generation and Energy Trading groups.
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