TransAlta Sells US, Canada Assets For C$439M; Street Sees 25% Upside

Canada’s leading electricity power generator TransAlta announced the sale of its power transmission assets in Canada and the US to its majority-owned subsidiary TransAlta Renewables Inc. for a total value of C$439 million.

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The company also announced a 6% increase in its dividend per share to C$0.045 for the quarter ending March 31, 2021. The new dividend reflects an annualized dividend of C$0.18 per share, marking an increase of C$0.01 per share. TransAlta’s dividend yield currently stands at 1.89%.

TransAlta’s (TAC) CEO Dawn Farrell stated “As we look towards 2021, this dividend increase for common shareholders demonstrates our confidence in our strategy along with our strengthened cash flows resulting from our ownership in TransAlta Renewables, our increasing cash flows from our post-PPA hydro fleet and the anticipated benefits from our conversion investments that are underway.

“This furthers our commitment of returning 10 to 15 per cent of deconsolidated funds from operations to common shareholders,” Farrell added.

Additionally, TransAlta has signed definitive agreements with TransAlta Renewables under which the latter will acquire a 100% direct interest in the 207 MW Windrise wind project located in Alberta; a 49% economic interest in the 137 MW Skookumchuck wind facility located across Thurston and Lewis Counties in Washington State; and a 100% economic interest in the 29 MW Ada cogeneration facility located in Ada, Michigan. (See TAC stock analysis on TipRanks)

The company disclosed that the portfolio being sold to TransAlta Renewables has an average weighted contract life of about 19 years. The value of the acquisition is expected to be C$439 million, including the remaining construction costs for the Windrise wind project. The company expects the transaction to be completed in early 2021, subject to satisfaction of closing conditions.

Earlier this month, BMO Capital analyst Benjamin Pham raised his price target on TransAlta to C$10 from C$8 and reiterated a Hold rating.

Overall, the Street is cautiously optimistic on the stock, with 4 Buys and 4 Holds adding up to a Moderate Buy analyst consensus. The average price target of $9.21 indicates upside potential of 25% in the months ahead. The company’s US-listed shares have increased 3% on a year-to-date basis.