A rise in shareholder activism poses questions for companies with lagging share performance.
The rise in shareholder activism could spur some companies with lagging share performance to initiate or accelerate strategic initiatives, including separation of functionally disparate businesses, MLP formation, selling non-core operations, or selling the whole kit and caboodle. That said, there is value creation, and then there is looting.
Call options can be used as a financing tool for fixed-cost renewable energy technologies.
An unexploited benefit of renewable energy is the predictability of operating costs over the long term. A renewables operator knows today how much it will cost to produce energy decades in the future. This future price certainty has a value that can be transferred to electricity buyers or other market participants. How much value can a renewable-plant operator capture from selling long-term call options, given several future price and volatility scenarios? What will be the cost and benefit to an individual buyer or seller?
Michael R. Yogg, who manages Putnam's Global Utilities Fund, explains what investors want from the sector.
Is the love affair with utility stocks cooling? A Standard and Poor’s equity research report in late May included a negative outlook for electric utilities: “We think the sector will underperform in 2006, weakened by the rising interest-rate environment,” the report said. But not all investors agree. We talked with veteran portfolio manager Michael R. Yogg of Putnam Investments, who revealed how the modern-day investor views the utilities sector.
The old paradigm—a strong inverse correlation of high interest rates and lower utility valuations—once again takes hold.
The recent breakout of the benchmark 10-Year Treasury yield from the recent mid-4 percent yield band to approximately 5 percent (with some market expectation that it may increase further) potentially has important strategic and value implications for the power and utility industry.
Market risks and volatilities are driving asset values higher.
About 10 percent of the power-generating capacity in the United States has changed hands in the past three years. How buyers factor the variables and predict the future will distinguish winners from losers in the evolving power-generation industry.
A review of total shareholder returns shows how growth and merger strategies drove performance last year.
To better understand the performance of the electric utility sector from both a short-term and long-term perspective, we examined the total shareholder return (TSR)—dividends plus change in stock price—of 58 electric companies for 2005 and for three- and five-year periods. We grouped these companies into four categories to better understand the impact of alternative strategies on investor performance: Recovering, Traditionalist, Growth, and Merger.
With increasing unit costs, the financial prospects and credit outlook for many utilities will depend on their success in passing along such costs to consumers.
The utility sector still has excellent access to the capital and credit markets. Yet, it is never safe to assume utilities will continue to enjoy the same low costs of capital. This is particularly true for companies facing compressed margins, regulatory deferrals or disallowances, and rising debt leverage.
Some supplies may not make it to U.S. ports.
With the dramatic growth of the liquefied natural gas (LNG) trade worldwide and increased dependence on LNG as the gas fuel of the future, gas-utility companies at the end of the chain need to question whether the LNG chains are still safe, reliable, and well managed. But before diving in to some of the risks, it should be pointed out that historically LNG chains have been safe.
Presenting a new management model.
Utility companies are at a crossroads when it comes to managing their pension plans. They must determine the best ways to continue to offer this benefit while controlling the impact these plans have on the overall financial health of the organization.
One simple line in the recent Energy Policy Act sets the stage for broader geographical ownership by current utilities and easier ownership from outside industries. Readers know very well that one line calls for the repeal of the depression-era Public Utility Holding Company Act, and many pundits have stated that a wave of mergers and acquisition activity is now imminent.