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Alterra Power Is Still Underestimated By Mr. Market

Summary In 3Q 2015 Alterra delivered decent financial results. Very soon the company should commence operations at two new renewable energy projects: Shannon Wind Farm and Jimmie Creek hydroelectric power plant. In my opinion, Alterra’s shares are still underestimated against its peers. Alterra Power ( OTCPK:MGMXF ) runs five renewable energy power plants with a total capacity of 553 MW (megawatts). Apart from operating facilities, the company holds a portfolio of energy projects, of which two are at their advanced stages of development. In my first article on Alterra I made a statement that the company’s shares offer an impressive upside potential. Since that time Alterra’s shares went up from $0.31 to $0.41 (August 17) and then retreated. Now they are trading at $0.34 (up 9.7% since my first article). I am not impressed – Mr. Market still underestimates these shares ignoring the fact that Alterra is quickly strengthening its position as a provider of green energy. In this article I am trying to defend my earlier investment thesis on Alterra. Time is appropriate – the company has just announced its 3Q 2015 results . Business philosophy. Alterra is focused on growing its business through construction of new renewable energy power plants. Apart from HS Orka, at which Alterra holds a majority stake, all power plants are constructed as partnerships with strong financial partners: Toba Montrose – a partnership with Fiera Axium, with Alterra holding a 40% economic stake Dokie 1 – partnership with Fiera Axium (a 25.5% stake belongs to the company) Jimmie Creek – another partnership with Fiera Axium, with Alterra holding a 51% stake Shannon Wind – partnership with Starwood Energy Group Global (Alterra holds a 50% stake) The philosophy standing behind this approach is simple – Alterra wants to grow its power plants portfolio as quickly as possible and partnerships are one of the best methods to finance the company’s development. These partnerships are accounted for using an equity method of accounting – that is why the analysis of the company’s partnership stakes is crucial to have a thorough perspective on Alterra’s performance. 3Q 2015 results Alterra is quite a complicated company to analyze. For example, although it runs five power plants and two advanced development projects, only two of them are accounted for using a consolidation method of accounting – the rest is accounted for using an equity method of accounting. In my analysis I am firstly presenting the overall results of the company and then the results reported by each plant / project, most of which are accounted for under an equity method. The overall results The table below shows basic financial measures, reported in the first nine months of 2015 and 2014: (click to enlarge) source: Simple Digressions and the company’s reports As the table shows, in the first nine months of 2015 the company’s revenue decreased 18.3%, compared to the same period in 2014. However, this revenue is attributable to two geothermal power plants, Reykjanes and Svartsengi, located in Iceland. Alterra controls these plants holding a 66.6% stake in HS Orka, a mother company to those two geothermal facilities. Similarly, other lines in the earnings statement, apart from “Share of results of equity-accounted investees”, are attributable to HS Orka and the overall corporate issues. Note: I have to remind my readers a crucial accounting rule. Although Alterra holds a 66.6% stake in HS Orka, the earnings statement considers all (100%) operations carried by HS Orka. To exclude a 33.3% stake held by other stakeholders, an appropriate correction is made at the bottom line of the earnings statement (in the line called “Net income attributable to non-controlling interest”). Therefore, during the first nine months of 2015 Alterra printed a net loss of $7,128 thousand, but the other HS Orka stakeholders, classified as non-controlling interest, booked an income of $1,566 thousand. In this way a net loss attributable to Alterra increased to $8,694 thousand. This quite poor picture of the company, presented in its earnings statement, would be much poorer if it was not partly mitigated by an item called “Share of results of equity-accounted investees”. This line shows the results reported by power plants and projects, which are accounted for under an equity method. As the table below shows, in the first nine months of 2015 these entities reported a profit of $21,251 thousand (87.5% up, compared to the same period in 2014). Let me break down this figure: (click to enlarge) As the table shows, the results, attributable to five plants / projects, are accounted for using an equity method. Three of them: Toba Montrose, Dokie 1 and Blue Lagoon are plants in operation. The other two, Shannon and “Geothermal development projects” are projects under development, of which one project, Shannon, is at an advanced stage of development. As the table shows, the biggest part of an increase in “Share of equity income” is attributable to Shannon. For a better comparison, this project should be excluded (last year Shannon was accounted for using a different method of accounting – full consolidation). However, after doing it, “Share of equity income” is still higher than last year ($13,813 thousand against $11,333 thousand). Simply put, Alterra’s power plants, other than HS Orka, are doing better than last year. In my opinion, it confirms a thesis that Alterra’s business is in good shape. Now, let me analyze the company’s plants / projects separately. Currently Alterra is a company under development. It means that it is a mix of a number of active power plants and projects at various stages of development. Let me take a closer look at these facilities and projects: Plants in operation HS Orka HS Orka consists of two geothermal power plants: Reykjanes and Svartsengi, both located in Iceland. In the first nine months of 2015 HS Orka reported revenue of $41,664 thousand (down 13.0%, compared to the same period in 2014). This decrease was attributable to the exchange rate between the Icelandic krona and the US dollar because revenue, if reported in the Icelandic currency, went up from ISK 5.31 billion in the first nine months of 2014 to ISK 5.39 billion in the same period in 2015 (an increase of 1.5%). Note: as a matter of fact, Alterra owns operating facilities located in Canada and Iceland. While the company’s reporting currency is the US dollar, Alterra’s operations are measured in the Canadian dollar and the Icelandic krona. Therefore to catch a full picture of the company, I recommend studying statement of comprehensive income (which measures the impact of exchange rates, cash flow hedges and other issues on the company’s bottom line). The HS Orka EBITDA and cash flow from operations followed revenue, expressed in ISK. EBITDA went up from ISK 1.96 billion to ISK 2.1 billion and cash flow from operations (excluding working capital issues) went up from ISK 1.9 billion to ISK 2.0 billion. Due to an increase in non-cash line called “Embedded derivatives in power sales contracts” HS Orka reported a decrease in its net income from ISK 1.2 billion in 2014 to ISK 0.3 billion in 2015. In my opinion, fluctuations in the value of embedded derivatives are standard features of this business and should not be taken as a risk. Toba Montrose Toba Montrose comprises two hydro power plants located in British Columbia, Canada. In the first nine months of 2015 Toba Montrose generated 704 thousand megawatt-hours of electricity (8.2% up, compared to the same period in 2014). The plant delivered net income of $18,403 thousand (1.9% down, compared to 2014), of which $7,417 thousand was attributable to Alterra (the company holds a 40% stake in Toba Montrose). Dokie 1 Dokie 1 is a wind farm located in British Columbia, Canada. Year to date Dokie 1 delivered revenue of $20,515 thousand, slightly above revenue reported in 2014 year to date. Due to lower costs (mainly costs of sales and financial expenses), year to date the farm showed a net income of $2,158 thousand (last year Dokie 1 incurred a net loss of $1,380 thousand). Of this income, 25.5% ($647 thousand) was attributable to Alterra. Blue Lagoon Blue Lagoon operates the legendary Blue Lagoon geothermal spa in Iceland. HS Orka owns a 30% stake in this company (Blue Lagoon) therefore this stake is reported directly in Alterra’s books using an equity method of accounting. In the first nine months of 2015 Alterra recognized net income of $6,241 thousand (up $2,057 thousand, compared to 2014). Summarizing, in the first nine months of 2015, all Alterra’s power plants operated with no major problems. Power plants, accounted for using an equity method, brought $14,305 as “Share of results of equity-accounted investees” (compared to $11,577 thousand in 2014). In my opinion, these figures confirm that Alterra’s power plants are heading for the right direction. Projects under development Currently Alterra has two projects under advanced development: Shannon and Jimmie Creek. Shannon Shannon is a wind farm project located in Texas, USA. It is owned by a partnership between Alterra (50%) and Starwood Energy Group Global (50%). Shannon is accounted for under the equity method (previously it was fully consolidated in Alterra’s books). The project is fully financed through a mix of an equity contribution (delivered by Starwood) and project financing ($286.8 million in credit facility). According to the company, commercial operations should start before the end of 2015. Jimmie Creek Jimmie Creek is a hydro power plant project located in British Columbia, Canada. It is owned by Alterra (51%) in a partnership with Axium (49%). Similarly to Shannon, this project is fully financed. In the beginning of 2016 Jimmie Creek should start delivering electricity to BC Hydro, under a 40-year power purchase agreement. The excerpt below, taken from the company’s 3Q 2015 report, summarizes Alterra’s stakes in all plants and projects (excluding HS Orka): (click to enlarge) As the picture shows, at the end of September 2015 the company was holding $186 million in various issues accounted for under the equity method. The company’s long-term performance Before writing this article I was wondering how to show the company’s long-term performance. After second thought, I have chosen book value as a leading measure. I think that any energy producing company should increase its book value in the long term. Calculating Alterra’s book value I have excluded two issues, which distort it: Accumulated other comprehensive income (AOCI) – it is part of the equity section of the balance sheet, representing accumulated unrealized gains and unrealized losses, such as cash hedges or currency translation adjustments. Every year or quarter this item fluctuates, very often quite much. What is more, AOCI depends on exchange rates, interest rates and other issues, which the company does not control. Therefore I have eliminated AOCI from my calculations of book value. Non-controlling interest – because non-controlling interest represents the stakes other entities hold in the company’s consolidated assets I have excluded this issue from my calculations. Now, let me take a closer look at this issue, taking Alterra as an example: (click to enlarge) source: Simple Digressions and the company’s reports The chart shows Alterra’s book value per share starting from 2011. It is not a nice picture – the company’s book value decreased from $0.69 per share (at the end of June 2011) to $0.33 per share at the end of September 2015. Someone would even say that the company was destroying value in the long-term. Well, it would be a half-truth. Since its beginning Alterra was trying to explore / develop quite a large number of projects. Part of expenditures on project development was accounted for as costs – in that case these costs were disclosed in the statements of operations. However, much larger part of development expenditures was capitalized in the balance sheet as “Development costs”. According to the company: “The Company capitalizes direct costs associated with its hydro, wind and geothermal development projects. Such costs include acquisition costs, exploration and development costs (including materials, direct labor, directly attributable overhead costs and borrowing costs), net of any recoveries and grants. Costs associated with successful projects are amortized over the useful life of the projects upon commencement of commercial production. Costs of unsuccessful projects are written off in the statement of operations in the period the project is abandoned or impaired” The last sentence is particularly important – unsuccessful projects are written off in the statement of operations. In 2013 and 2014 Alterra recognized impairments charges of $120,504 thousand and $22,439 thousand, respectively. On the per share basis it was $0.26 and $0.05, respectively. If the company did not recognize these charges, its book value at the end of September would stand at $0.64 per share, a little bit below its book value at the end 2012. Of course, it still means that the company has not built value in the long-term but every investor should remember that Alterra is at its initial development stage. At that stage a number of projects is doomed to failure. Alterra is no exception and it will take some time before the company starts to create value. Debt Alterra holds relatively high debt: (click to enlarge) According to the company (3Q 2015 Report, Note 13, page 20): “The Company currently plans to retire the holding company bonds (Sweden) through refinancing in 2016, for which the Company is currently in negotiations ” As for HS Orka loans of $81.7 million, though they are disclosed in the company’s consolidated balance sheet, they are non-recourse to Alterra – it is HS Orka, which has to pay this debt down. A holding company loan facility of $64.6 million will mature in 2023; till that time no principal payments are scheduled (the loan facility will be paid down on expiration). I believe that HS Orka will be paying down its debts so in the short-term there is only one small question mark – the company’s negotiations aiming at refinancing the holding company bonds (Sweden). Valuation To demonstrate Alterra’s market valuation I am using an Enterprise Value / EBITDA multiple. Including a non-controlling interest in the company’s valuation, currently Alterra’s shares are trading at a multiple of 11.7. The chart below shows valuations of a few renewable energy companies (as of November 20, 2015). In my opinion, Alterra’s shares are not overpriced, compared to its peers: (click to enlarge) source: Simple Digressions Summary In my opinion, Alterra is going in the right direction. Its current power plants operate with no major problems. In the coming future the company should increase its capacity through completing two additional, fully financed, energy projects. The first one, Shannon Wind, is a wind farm facility with a nameplate capacity of 204 MW. Shannon should be in operation at the end of this year. The second project, Jimmie Creek, is a hydroelectric power plant with a nameplate capacity of 62 MW. This project should start its operations in early-2016. After commencing operations at these new power plants, the company’s capacity will increase from 553 MW to 819 MW (an increase of 48.1%). Despite these positive developments, the market is valuing Alterra’s shares at an EV / EBITDA multiple of 11.7. I think it is relatively low valuation, compared to other renewable energy stocks. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Finding Value With The Piotroski F-Score Year 2: Part 1

Summary The Piotroski F-Score was designed to find companies that are cheap and recovering. The first year showed mixed results. This year the portfolio has been adjusted in an attempt to improve performance. This is the first article of the second series of articles looking at the investment performance of the Piotroski F-Score. In the first series, I covered the performance of a Piotroski F-Score long only strategy over the space of twelve months. The results were extremely disappointing. The value of the portfolio declined by 49.3% over the period . Still, giving up on the strategy after only one year wouldn’t accomplish much. So, this year two of the study. The details of the study are below. Finding value In the world of value investing, there are many ways to hunt for value opportunities. However, few are as well defined as the Piotroski F-Score, which aims to identify the healthiest companies amongst a basket of value stocks through applying a set of nine accounting-based stock selection criteria. The F-Score was designed to hunt out value opportunities that are profit-making, have improving margins, don’t employ any accounting tricks and have strengthening balance sheets. However, as usual, this strategy cannot be employed alone, it needs to be combined with another screening tool to produce a suitable set of results. One point is awarded for each criterion the company passes and the stocks that score the highest, eight, or nine are regarded as being the strongest candidates for recovery. Piotroski recommended scoring the bottom 20% of the market in terms of price to book value and then working from there. Using the following system, Piotroski’s April 2000 paper Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers , demonstrated that the Piotroski score method would have seen a 23% annual return between 1976 and 1996 if the expected winners were bought and expected losers shorted. According to the American Association of Individual Investors , year to date the F-score screening criteria with a low P/B value would have returned 3.4%. Over the past five years this return would have been 33.9% and the ten-year return was 26.7%. The screen I’m testing the F-Score, as both a way to discover value stocks and trade them without fundamental analysis. The screening criteria and investments are based purely on the financials in an attempt to remove any emotional bias — something that holds back investment performance. The F-Score screening criteria are as follows: Profitability Signals 1. Net Income – Score 1 if there is positive net income in the current year. 2. Operating Cash Flow – Score 1 if there is positive cashflow from operations in the current year. 3. Return on Assets – Score 1 if the ROA is higher in the current period compared to the previous year. 4. Quality of Earnings – Score 1 if the cash flow from operations exceeds net income before extraordinary items. Leverage, Liquidity and Source of Funds 5. Decrease in Leverage – Score 1 if there is a lower ratio of long term debt to in the current period compared value in the previous year. 6. Increase in Liquidity – Score 1 if there is a higher current ratio this year compared to the previous year. 7. Absence of Dilution – Score 1 if the Firm did not issue new shares/equity in the preceding year. Operating Efficiency 8. Gross Margin – Score 1 if there is a higher gross margin compared to the previous year. 9. Asset Turnover – Score 1 if there is a higher asset turnover ratio year on year (as a measure of productivity). And the 20 largest companies that qualify in the current environment are as follows (in order of mkt. cap): NRG Energy Inc (NYSE: NRG ), Noble Corp plc (NYSE: NE ), Darling Ingredients Inc (NYSE: DAR ), EP Energy Corp (NYSE: EPE ), DigitalGlobe Inc (NYSE: DGI ), McDermott International (NYSE: MDR ), Atwood Oceanics, Inc. (NYSE: ATW ), Cash America International Inc (NYSE: CSH ), Navigator Holdings Ltd (NYSE: NVGS ), Danaos Corporation (NYSE: DAC ), DHT Holdings Inc (NYSE: DHT ), Roadrunner Transportation Systems Inc (NYSE: RRTS ), Century Aluminum Co (NASDAQ: CENX ), Ocean Rig UDW Inc (NASDAQ: ORIG ), West Marine, Inc. (NASDAQ: WMAR ), Marchex, Inc. (NASDAQ: MCHX ), Luby’s, Inc. (NYSE: LUB ), Manning and Napier Inc (NYSE: MN ), Hardinge Inc. (NASDAQ: HDNG ), Trans World Entertainment Corporation (NASDAQ: TWMC ). P/B figures rounded to the nearest whole number. To assess the F-Score, I’m starting a hypothetical portfolio with a $1,000 investment in each company. Investment prices are based on the closing price on 11/20/2015. These positions are based on financial data only; there’s no weighting to fundamental factors. I’ve decided to use this method in an attempt to take all of the emotion out of the trading and running of the portfolio, only when a stock qualifies under the set criteria will it be included in the portfolio and held for the next 12 months until rebalancing. Like the original Piotroski F-Score, as well as buying a basket of stocks that qualify for the screen, I’m also shorting a hypothetical basket of stocks. The short basket will be composed of companies that have the lowest F-Score in my screen. For liquidity issues, I’m excluding any companies with a market cap. of less than $100m from my short basket. Here are the short candidates, in order of market cap: Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX ), Tesla Motors Inc (NASDAQ: TSLA ), Under Armour Inc (NYSE: UA ), Ctrip.com International, Ltd. (ADR) (NASDAQ: CTRP ), BioMarin Pharmaceutical Inc. (NASDAQ: BMRN ), Endo International plc (NASDAQ: ENDP ), Annaly Capital Management, Inc. (NYSE: NLY ), OneMain Holdings Inc (NYSE: LEAF ), Seattle Genetics, Inc. (NASDAQ: SGEN ), STERIS Corp (NYSE: STE ), Renren Inc (NYSE: RENN ), Southwestern Energy Company (NYSE: SWN ), Impax Laboratories Inc (NASDAQ: IPXL ), bluebird bio Inc (NASDAQ: BLUE ), The Medicines Company (NASDAQ: MDCO ), SolarCity Corp (NASDAQ: SCTY ), HRG Group Inc (NYSE: HRG ), Federal National Mortgage Assctn Fnni Me ( OTCQB:FNMA ), Prothena Corporation PLC (NASDAQ: PRTA ), Nord Anglia Education Inc (NYSE: NORD ). The short portfolio is being run with the same rules as the long portfolio. The companies have been selected based on financial data only; there’s no weighting to fundamental factors. Stocks will be included in the portfolio and held for the next 12 months until rebalancing. To reiterate, there’s no bias here. The companies selected are only included because they have the lowest F-Score of the largest 11,300 US companies my screen covers. The number of shares sold short will have an initial value of $1,000. Putting it altogether Here are the two initial portfolios based on the closing prices as of 11/20/2015. The bottom line Those are the 40 picks. I will admit that some of the companies mentioned above are risky bets but on a purely financial basis, they conform to the F-Score criteria, so they have been included. I’m tempted to include some fundamental analysis for each company, but that’s not the point of this study. Research has shown that emotional bias is one of the investors’ worst enemies; the F-Score tries to eliminate that That’s the introduction, over the next few months I will be assessing the portfolio’s performance on a regular basis with a final round-up this time next year. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Consider Midwest Utility ITC Holdings For Your DGI Portfolio

Summary Following my analysis of Wisconsin Energy, Southern Company and Avista, I decided to look at another possible growth prospect in the utilities sector. ITC offer superb growth opportunities together with great fundamentals and fair valuation. However, there are still several risk factors that must be taken into consideration, especially when we know it is a utility company. If you follow my last two articles, you will see that lately I am writing and debating with the readers about utility companies. I also wrote two articles about utilities back in March. The debate is whether one should look for a classic utility with high yield and low growth such as Southern Company (NYSE: SO ) or medium yield and medium growth like Wisconsin Energy (NYSE: WEC ). I must also note that I invest in Avista (NYSE: AVA ) as well, which also has medium yield and growth. I mentioned two out of the three types of dividend growth stocks. The third one is low yield and high growth. ITC Holdings (NYSE: ITC ) is a great example of such a company. I am going to analyze this company in this article, as I try to look for new investment opportunities. I found this stock while doing one of my routine screening, and I found out that it isn’t well known among dividend growth investors. ITC Holdings is a holding company. Through its regulated operating subsidiaries, International Transmission Company, Michigan Electric Transmission Company, ITC Midwest LLC and ITC Great Plains. It is engaged in the transmission of electricity in the U.S. It operates high-voltage systems in Michigan Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri and Kansas that transmit electricity from generating stations to local distribution facilities connected to its systems. Fundamentals The fundamentals shown by ITC are really remarkable. They are remarkable for any company, and especially for a utility company. The revenue rose steadily over the past decade. Ten years passed since the initial IPO of the company, and in these ten years the revenue grew from $200 million in 2005 to $1020 million in 2014. This is CAGR of 17.69%. This rate will not be sustained, but the revenue will keep growing in the next years to come at high single digits according to the management. ITC Revenue (Annual) data by YCharts EPS also grew in a very impressive manner, and it is going to grow quickly in the next years to come. Issuance of new shares slowed the EPS growth, but as you will see, it had very little effect. The EPS grew from $0.353 in 2005 to $1.54 in 2014. This is CAGR of 15.87%. This is again an amazing number especially for a utility. The company is forecasted to show EPS of over $2 in 2015. The company reiterates its five year plan, and is going to show double digits EPS growth until 2018. ITC EPS Diluted (Annual) data by YCharts The dividend also grew quickly over that decade. It grew at a slower pace than the EPS, so the payout ratio actually declined to around 36%. In addition, the company told investors in November that it might expand the payout up to 40% in the future. The dividend grew from $0.175 in 2005 to $0.61 in 2014. This is CAGR of 13.3% which is great. In 2015 the dividend was raised by additional 15%, and the management is willing to raise the annual payment by 10%-15% annually. The drawback is that the current yield is very low for a utility company at just 2.2%. ITC Dividend data by YCharts Over the past decade the amount of shares outstanding increased by around 50%. This is typical for companies that are growing, issuing equity is a common way to raise capital. However, in the last two years, 2014 and 2015, the board authorized a buyback plan of $250 million. The board is positive about the strength of the balance sheet and the cash from operations, and I believe it will issue another similar plan in 2016. $250 million is around 5% of the shares outstanding, pretty impressive. Valuation ITC is really fairly valued. The forward P/E is around 16. When taking into consideration the double digits growth rate, some might say that the valuation is low. The high growth rate is lowering the P/E for 2016 and 2017 significantly. If I have to determine, I find it valued fairly to slightly undervalued. ITC PE Ratio (NYSE: TTM ) data by YCharts The reasons for the lower valuation are the fact that ITC is a less known company with no buzz at all, and the fact that the dividend yield is extremely low for a utility company. If the company can achieve its dividend growth goals, it will be a great opportunity for long term investors. Opportunities ITC enjoys a high rate of revenue, EPS and dividend growth. This growth is achieved while the company is practically a monopoly in several states, as it possesses a very wide moat due to its massive infrastructure. If the company can grow that quickly while being a supervised monopoly, it has a pretty bright future. ITC will also enjoy the transformation on the American energy market. As power plants using coal are closed, and plants using naturals gas and renewable energy are opened, they will all need to transmit the electricity from the plants to their customers. The massive infrastructure owned by ITC will be ready to join forces with the power plants. In my previous article about Southern Company and Wisconsin Energy, I was told by several readers, that SO has an advantage over WEC, and it is the fact that it operates in the growing south and not in the Rust Belt. I am not sure that this is an advantage for the long term, as the economy is cyclical, but ITC for sure has nothing to worry about it. The company is well diversified, and it operates and in the Rust Belt as well as in the south. Geographical diversification is always a plus for a utility company which is usually locked in a certain area. Another advantage is the regulation. While the typical utility company is regulated by the states and the federal government, and therefore in a position where it can suffer from multiple state jurisdiction, ITC is solely regulated by the federal government, because it is an electric transmission company. In addition, the allowed return on equity is higher, which allows the company to charge more money for its service. According to S&P, the allowed ROE by the federal government is between 12.16%- 13.88%. Risks The first risk is competition. The competition can come from two places, other transmission companies especially from the west, and electric companies that can build their own infrastructure. The advantage of ITC is the fact that infrastructure requires a lot of capital. This is the wide moat that the company has, and the reason for this risk to be less relevant at current prices. The federal regulator received in 2013, a complaint asking for the reduction of the allowed ROE. A similar case in New England back in 2011 resulted in reduction of the allowed ROE two years later. This might harm the profitability. However, the request wasn’t fully granted, and I believe that the same will happen here as well. The low dividend is another downside. Yes, it can and should grow in the near future. The company believes that it can sustain substantial growth for the long run here. However, the profits depend on the regulators, and a change in the regulation might slow down the dividend growth, and we will have a utility stock that yields less than 2.5%, not something to brag about. The debt load is high, and is getting even higher. With the interest rates raising, it will be even more expensive. The company is using at the moment debt to finance its operation. The expects annual cash from operations to be around $650 million, while the annual capital investment is $800 million. Now, add the dividend and the buyback, and this small company must have access to credit at all time. The management is aware of that, and they know that their goal is to maintain the current credit rating- A. Conclusion Well, I can’t see myself buy ITC now, I prefer WEC and AVA over it. The growth is important and unique for a utility, but it will take years for it to reach a “utility yield”. It will need 5 years of superb growth to reach the yield of WEC, and 8 years of superb growth to reach the yield of SO. My preferred utility companies are the medium growth and medium yield like WEC and AVA. Therefore, I prefer these two over both SO and ITC. If you have several utilities and a very long investment horizon, you should consider adding ITC to your dividend growth portfolio. If you are a value investor, you might be buying it as well, as the growth prospects are here and valuation is fair. You can initiate a small position and enjoy the growth, it is an odd utility by yield and payout ratios as well as by growth, but it is also a great company, that isn’t necessarily right for my portfolio.