Embattled Just Energy, easily the highest-risk holding in our International Portfolio, posted solid results for its fiscal third quarter ended Dec. 31, 2013, triggering a massive short squeeze that sent the stock surging.
After slashing its dividend by 32 percent last year, the power company’s FFO failed to cover this lower payout in its fiscal first and second quarters.
Management attributed these shortfalls to seasonal factors–a legitimate assessment–and asserted that strong third-quarter results would offset weakness earlier in the year.
However, the company’s recent track record of poor expectations management made investors skeptical about its ability to deliver.
A lot was riding on Just Energy’s results: Short interest in the company’s US-traded shares had reached 13.46 percent of its outstanding float and 19.7 days of average trading volume, reinforcing the market’s lack of confidence in the firm’s turnaround effort.
We took a chance on Just Energy for three reasons:
Our bet paid off. Just Energy proved the critics wrong and delivered earnings that suggest the company will be able to sustain its monthly dividend of CA$0.07 per share.
Just Energy posted third-quarter FFO of CA$38.8 million, a 9.9 percent increase from the prior year. This solid showing translated into a payout ratio of 80 percent and reduced the payout ratio for the nine months ended Dec. 31, 2013, to 114 percent–a vast improvement over the 272 percent payout ratio that the firm posted over the same period last year.
Management reiterated guidance for the company to generate sufficient FFO to cover its full-year dividend obligations and called for further progress in its fiscal 2015.
In a conference call to discuss Just Energy’s third-quarter results, CEO Ken Hartwick reinforced once again that the company aims to cut costs and grow its margins by double digits in fiscal 2014.
Management’s guidance calls for a 26 percent increase in Just Energy’s full-year earnings before interest, taxes, depreciation and amortization (EBITDA). Although weather will play an important role in the final results (the colder, the better), Just Energy has grown its EBITDA by 37 percent in the first nine months of its fiscal year.
Your complete guide to energy investing, from growth stocks to high-yielders.
In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on Oct. 30, 2017
Balanced portfolios of energy stocks for aggressive and conservative investors.
Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.
Our assessment of every energy-related master limited partnership.
Roger Conrad’s coverage of more than 70 dividend-paying energy names.