Waiting on a deadline

Feb 1st, 2010 – Comment

At this point there is no indicator signalling a rise in the price of the units . Why own what is essentially an equity if it doesn’t seem to have an upside?


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boralex

Is this stock at its current price a good long term play. Is the divedend safe?

Tom

 

Hi Tom,

Boralex Power Income Fund ( BPT.UN TSX) is a power utility that operates ten power generating plants, eight in Quebec and two in New York State. The company has seven hydroelectric facilites as well as wood residue and natural gas co-generation facilities. Their wood residue plants have had troubles getting fuel as many sawmills that supplied them have shut down. The Dolbeau Power Plant has gotten caught up in AbitibiBowater’s creditor protection filing and is in the process of working its way out of those challenges.

 

The units offer distributions that yield 9.1% but as with all trusts the question becomes which direction it will take as we approach the January 1, 2011 deadline that will see the tax treatment of trusts change to a less favorable one. To this point management has not indicated if it will be converting to a dividend paying corporation or be looking for a buyer.

bpt

The three year chart provides a view of the steady decline in the price of the units from October of  2007 to the lows of  December of 2008. There has been recovery from the lows but the units are now struggling with resistance at $4.50 and then at $5.00.

 

 

 

bpt2

The six month chart provides a view of the recent trading in the units of BPT.UN and what is clear is that there is support along the 200 day moving average.

 

 

When you talk about the long term potential of BPT.UN you have to take into account the January 01,2011 deadline and the implications arising from the legislated changes to the tax treatment of distributions from trusts.  In addition the distributions have been in a decline since January of 2008 when they were $0.075 per month to $0.0333 a month in January 2010.

At this point there is no indicator signalling a rise in the price of the units . Why own what is essentially an equity if it doesn’t seem to have an upside?

Happy Capitalism!

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