Transalta Investment Thesis Broken Given Weak Guidance and Challenging Market Fundamentals

By David Fisher

Disclosure: The author of this report has a long position in Transalta Corp. (TSE:TA). Positions can change at any time without notice.
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  • Transalta’s (TSX:TA) recently announced 2019 cash flow guidance of C$270 – C$330 was materially below our expectations and well below the company’s previous cash flow target in the C$375 – C$425 range for the 2019 – 2020 period.
  • We believe near-term power demand growth will remain weak due mainly to Alberta oil curtailments that are set to take effect in January.
  • The longer term outlook for Transalta is also clouded by announced generating projects (Suncor co-generation plant, Milner gas-fired generation), the transition to a capacity market in 2021, and the Alberta elections in 2021 that could result in policy changes.
  • Transalta’s shares continue to appear relatively inexpensive, however, risk appears to the downside. We  believe there are better investment opportunities in the current environment.