Tonbridge Power Inc. needs to educate the market on its valuation model

Apr 15th, 2011 – Comment

The analyst you mentioned has obviously accepted the company’s valuation model while the market is maintaining the existing valuation model for electrical power transmission lines.


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Hi Lou,

Can you give me your views on Tonbridge Power? A resource analyst gave this a target of $7.00 back in April 2010. It was trading at $2.60 at that time and has declined ever since.

 Thanks,

 Stan

Hi Stan,

Thanks for the assignment. Tonbridge Power Inc. (TBZ TSXV) has undertaken a merchant approach to building an electrical power transmission line from Lethbridge, Alberta to Great Falls, Montana. The company also intends to build out expanded capacity on that line and to build a second line in the future. The idea behind TBZ is that in order to bring stranded green power to market, from wind in this case, someone has to step up and build out the transmission capacity using a different business model.

The analyst you mentioned had obviously accepted the company’s valuation model while the market is maintaining the existing valuation model for electrical power transmission lines. Once the primary line called  Montana Alberta Tie Ltd.  is completed and new streams of revenue starts to flow the market may be willing to up its valuation. Luckily the company expects the line to be operating by the second half of 2011. At that point all will be revealed, nothing will be hidden. Lets consult the charts for some guidance

The three year chart depicts the spike to $2.60 in April of 2010 and the steady decline ever since. The lesson here is that you have to take an analyst’s report as the starting point for your due diligence. Just because someone hangs a target price of $7.00 on a stock doesn’t mean that the stock won’t have to go through $1.50 to get there!  What we can also see is that the MACD generated a sell signal in April of 2010. The chart also indicates the upside resistance that TBZ has not been able to overcome in the last 12 months. 

The six month chart illustrates the inability to break above the 200 day moving average in March of 2011 and the sell signal generated by the MACD in that same period. Currently the MACD does appear to be turning higher but you have to keep in mind that TBZ is a thin trading stock. Its average daily volume over the last three months is just over 32,000 shares a day. It has only been able to generate above average volume in eight of the last thirty trading days. This is not the behavior of a market leader.

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Categories: Utilities
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