Was reading today about Atlantic Power (NYSE: AT), an independent power producer that sells electricity to utilities.
AT has a $275M market cap, $1B of debt, $220M of preferred stock and $86M of cash. 2017 unlevered free cash flow is expected to be in the range of $125-140M.
The bullish thesis on the name is that management will pay off $400M of debt by 2020, and the common equity value of $275M today will increase by the debt paydown of $400M, taking a $2.30 stock price to over $5 per share. The big concern with the stock is the potential expiration of several purchase price agreements with utilities in the next few years.
Lest you think I've forgotten that this is the MMC board, I immediately started doing the mental comparison to the situation at hand here.
$224M market cap, $425M of debt, $195M of *preferred* stock and $12M of cash. 2017 unlevered free cash flow is expected to be in the range of $150-250M. The big concern with the stock is one of:
A. The Chinese economy crashing, taking the Chinese steel market and Chinese coking coal market with it
B. Future weakness in coking coal prices (despite what the futures market is currently telling us)
C. The company's ability to ramp production to full capacity (despite what Mongolian scuttlebutt is telling us)
D. The douchenozzle who just got elected president of Mongolia
E. The douchenozzle who is supreme leader of North Korea
What happens when MMC (hopefully) pays off $425M of debt by 2020? Does the common equity value of $224M today increase by the same amount as the debt paydown?
Or will we have new things that suppress the stock price to worry about?
