Valener: A Fat And Low-Risk 6.4% Dividend

Reposted from Seeking Alpha
By Brian Langis

Note: Dollar amounts are in Canadian $ unless mentioned otherwise. USD-CAD 1.1097 Price of 1 USD in CAD. Source: Bloomberg

Valener (OTC:VNRCF) (VNR) is a public investment vehicle that holds an economic interest of 29% in Gaz Métro LP and a 24.5% interest in the Seigneurie de Beaupré wind farm power project. Valener is an energy holding with activities in energy production, energy distribution, transportation of natural gas, energy services, and storage & others. Valener’s growth strategy is directly linked to Gaz Métro’s strategic plan and the Seigneurie de Beaupré wind power projects. Valener also has independent access to growth opportunities as long as it doesn’t directly compete with Gaz Métro’s activities. To help better understand this investment opportunity, financial information of both Valener and Gaz Métro are presented.


Investment Thesis

This is an opportunity for the conservative fixed-income investor that is starving for yield in this never-ending low interest world. If you fit in that category, Valener offers a low-risk solution to your yield problem. VNR offers stable and predictable cash flows, an attractive ~6.4% dividend yield, a solid portfolio of investments, and a strong financial position. VNR brings an element of stability, so don’t expect the value of your investment to jump up and down because the 52-week low/high is $15.17 and $16.44.

By investing in VNR you not only lock in a fat dividend, you can also participate in any future potential growth. VNR’s cash flow is secure since Gaz Métro has an absolute monopoly in the distribution of natural gas in Quebec and Vermont. Through its affiliates, Gaz Métro also distributes 70% of Vermont’s electricity. Another element that secures its future cash flow is its 340 MW interest in the Seigneurie Wind Farms that recently just got online. The wind projects are locked into a 20-year contract with the Quebec government (Hydro-Quebec), further securing the cash flow.

Valener is not a homerun or a multi-bagger type investment. This is a reliable regulated stable utility company. This is an income play with a slight potential in capital appreciation over the long run without taking unnecessary risks. As a perk, this investment also responds to environment conscious investors because of Valener’s strong presence in renewable energies.

Based on my valuation, the value of Valener is in the range of $16.71 and $20.00 per share. The $20 is the less likely scenario since it’s the minimum price I would see in a takeover scenario. In the short term, there’s reasonable potential for a 6.7% in capital appreciation and this can add up to 12% if you add the dividend. Valener’s low profile, small size, and indistinct structure might contribute to its shares trading below book value.

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