13 May

Atlantic Power Corporation and my 3 investment lessons

First time I’ve read about Atlantic Power at Divestor blog.
ATP is kind of this sad stock that has crashed in 2013 and was moving nowhere since then.

Chart Source: Yahoo! Finance


After some little research, mostly by reading Divestor’s posts, 😀 I’ve decided to give it a go.
On August 10, 2020, I’ve bought my first little batch at C$2.63/share, then I’ve bought much more in December, bringing my average cost to C$2.59.
In my understanding the timing was perfect, as ATP share price fell from ~C$3.00-3.30 to ~C$2.50-2.80 because of covid, even though management mentioned that they have no material impact because of a pandemic:

As highlighted on Page 4 of the presentation, our safety performance numbers have improved as a result of continued focus on this critical area with 2 recordable incidents year-to-date, down from 7 a year ago. We are continuing to manage well through the pandemic. To date, we have not experienced a material impact on our business or on our plant operations.

I’ve done some research on my own by reading call transcripts, checking financial statements, and browsing their website. 🙂
The company’s financial situation was slowly improving, they were paying down debt and even buying back shares, so it was just a matter of time before the stock goes up.
Recontracting power plants was a problem, though.
But CEO was very upbeat saying the following on the Q3 2020 Earning Call:

The — in that scenario, I’d love it. I mean, because I’ll be holding my shares. And then at some point, I’ll hand them off to my kids, and they’re going to own Curtis Palmer on the Hudson River and good luck trying to replicate that, and they’re going to have some gas plants that I think will have value that’s emerging over the next 5 years in long life biomass.

How can’t you want this stock after that?

Fast forward to 2021 and ATP announced that it agreed to be acquired by I Squared Capital.
Not everyone liked the offer and, surprisingly to me, lots of people were holding ATP (AT in the US) shares, like Kuppy for example:
https://adventuresincapitalism.com/2021/01/15/on-getting-stolen-from/.
As for me, I was a bit puzzled by 180 degrees turn in CEO’s opinion on the future of the company:

Selling the company is bittersweet. But with our shareholder hat on, it’s increasingly obvious that the next 5 years might be a repeat of the last 5 years. Even if we could deploy all of our discretionary cash flow into growth, it wouldn’t be meaningful enough to offset the total decline in EBITDA from PPA expirations and lower power prices. And with declining EBITDA, the credit of our securities may become more challenged over time. The preferred shares are perpetual and the Medium Term Notes have long remaining tenor. By contrast, the Term Loan B gets paid off much sooner. If power prices remain lower for longer, as they have since 2017 when we discussed that scenario, our ability to continue paying dividends on our preferred shares or to pay off our Medium Term Notes likely would be increasingly challenged. Instead, this transaction would derisk all our securities at a premium to the recent and longer-term over 5 years, say, trading ranges for those securities.

In the end, it seems like he didn’t want to hand his shares off to his kids. Well, ok then.

There were talks that a higher bid might follow, so I’ve decided to wait and see what will happen next.
Instead of a higher bid, posts and articles (mostly from Preferred Shareholders, I guess) started to appear suggesting to vote against the takeover.
Like this one: https://seekingalpha.com/article/4400274-atlantic-power-preferred-shareholders-should-vote-against-proposed-takeover-unless-better
Then some news about possible class action started to circulate as well:
https://www.globenewswire.com/news-release/2021/03/08/2188967/0/en/SHAREHOLDER-ALERT-Rigrodsky-Law-P-A-Announces-Investigation-of-Atlantic-Power-Corporation-Buyout.html
and
https://www.prnewswire.com/news-releases/shareholder-alert-monteverde–associates-pc-announces-an-investigation-of-atlantic-power-corp–at-301241133.html.

“What’s the heck?”, I thought on March 11, 2021, and sold all my shares for C$3.68 making a nice ~42% profit.
Anyway, nothing bad has materialized and it seems like ATP will go private very soon.

My 3 lessons from this little financial adventure:
1. Follow smart guys on the internet, thanks to Divestor, I’ve made good money with minimum efforts.
2. Don’t trust company’s management, they can easily lie to or mislead investors. Atlantic Power is not the worst case in my experience.
3. If there is a nice offer for your shares, take your money and run! 🙂
A good example is Cineplex.
On December 16, 2019, Cineplex agreed to be acquired by Cineworld, and stock jumped from ~C$24/share to ~C$34/share overnight, but then Covid-19 happened.
Stock fell sharply and kept falling till it hit the bottom of C$4.32 in October 2020.
Those who sold right away after the news made a good profit, those who decided to wait or even bought after the announcement of acquisition most likely lost a lot.
At the moment, CGX is trading at ~C$12, which is half of what it was in 2019.
And btw, one of the Cineplex locations in the mall near me has permanently closed.

Chart Source: Yahoo! Finance

One thought on “Atlantic Power Corporation and my 3 investment lessons

  1. Just on time:
    DEDHAM, Mass., May 14, 2021 /CNW/ -- Atlantic Power Corporation (NYSE: AT) (TSX: ATP) ("Atlantic Power"), announced today the closing ("Closing") of its previously announced transaction with affiliates of infrastructure funds managed by I Squared Capital Advisors (US) LLC (the "Transaction").

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