ATCO - Atlas Corp

[petec]

Yes, it's interesting. This brings them to $690m of cash deployed this year (not counting deals announced in 2019 but closed in 2020). That's substantiallly all of 2020 operating cash flows, so cash is being deployed at a prodigious rate.

The last two deals involve four ships, built in 2011, 2012, 2018, and 2018, purchased for a total of $322m. Both deals generate a current run rate of $20m in ebitda, for $40m in total. Without knowing the lease details we can't calculate an IRR, but:
- If you assume 70% debt financing at 5% and a 20% tax rate (well above the corporate average) you get an ROE of 24% at the current run rate. If these flows are maintained for 4 years, equity is repaid.
- Total contracted revenues for the two deals are about $320. Assuming Seaspan's corporate average ebitda margin of 63% (using low end of 2020 guidance range) that's $200m in ebitda, or 5 years at the current run rate, acquired for $176m.

Sokol grew Mid-American at a 23% ROE for about 20 years.  His strength is capital-intensive businesses and making them very efficient.  Bing is no slouch either!  Cheers!

Yes. I’ve never really trusted that number because my source is Prem and I think he can be a bit sloppy with figures. But Sokol is definitely one of my big reasons for owning Atlas.

[Parsad]

Yes, it's interesting. This brings them to $690m of cash deployed this year (not counting deals announced in 2019 but closed in 2020). That's substantiallly all of 2020 operating cash flows, so cash is being deployed at a prodigious rate.

The last two deals involve four ships, built in 2011, 2012, 2018, and 2018, purchased for a total of $322m. Both deals generate a current run rate of $20m in ebitda, for $40m in total. Without knowing the lease details we can't calculate an IRR, but:
- If you assume 70% debt financing at 5% and a 20% tax rate (well above the corporate average) you get an ROE of 24% at the current run rate. If these flows are maintained for 4 years, equity is repaid.
- Total contracted revenues for the two deals are about $320. Assuming Seaspan's corporate average ebitda margin of 63% (using low end of 2020 guidance range) that's $200m in ebitda, or 5 years at the current run rate, acquired for $176m.

Sokol grew Mid-American at a 23% ROE for about 20 years.  His strength is capital-intensive businesses and making them very efficient.  Bing is no slouch either!  Cheers!

Yes. I’ve never really trusted that number because my source is Prem and I think he can be a bit sloppy with figures. But Sokol is definitely one of my big reasons for owning Atlas.

Actually, all you have to do is look at what Mid-American was earning when Berkshire acquired it in 1999 ($104M) and what it was making in 2010, shortly before Sokol left...$1,131M.  That's about 26% annualized over 10 years in earnings growth.  He essentially did the same thing 10 years earlier growing earnings from $10M to $104M.  Cheers!

[ourkid8]

Why is Atlas Corp even paying a dividend when David can allocate capital at such a high rate of return? It makes no sense...

Yes, it's interesting. This brings them to $690m of cash deployed this year (not counting deals announced in 2019 but closed in 2020). That's substantiallly all of 2020 operating cash flows, so cash is being deployed at a prodigious rate.

The last two deals involve four ships, built in 2011, 2012, 2018, and 2018, purchased for a total of $322m. Both deals generate a current run rate of $20m in ebitda, for $40m in total. Without knowing the lease details we can't calculate an IRR, but:
- If you assume 70% debt financing at 5% and a 20% tax rate (well above the corporate average) you get an ROE of 24% at the current run rate. If these flows are maintained for 4 years, equity is repaid.
- Total contracted revenues for the two deals are about $320. Assuming Seaspan's corporate average ebitda margin of 63% (using low end of 2020 guidance range) that's $200m in ebitda, or 5 years at the current run rate, acquired for $176m.

[Parsad]

Why is Atlas Corp even paying a dividend when David can allocate capital at such a high rate of return? It makes no sense...

Yes, it's interesting. This brings them to $690m of cash deployed this year (not counting deals announced in 2019 but closed in 2020). That's substantiallly all of 2020 operating cash flows, so cash is being deployed at a prodigious rate.

The last two deals involve four ships, built in 2011, 2012, 2018, and 2018, purchased for a total of $322m. Both deals generate a current run rate of $20m in ebitda, for $40m in total. Without knowing the lease details we can't calculate an IRR, but:
- If you assume 70% debt financing at 5% and a 20% tax rate (well above the corporate average) you get an ROE of 24% at the current run rate. If these flows are maintained for 4 years, equity is repaid.
- Total contracted revenues for the two deals are about $320. Assuming Seaspan's corporate average ebitda margin of 63% (using low end of 2020 guidance range) that's $200m in ebitda, or 5 years at the current run rate, acquired for $176m.

I agree!  Probably two reasons for the dividend...legacy dividend from Seaspan...Washington family may want an income stream without selling any more equity.  Fat dividend now, but I suspect it will grow slowly in the future, and will probably drop to about 2.5-3% as the stock hits fair value...$14-15.  Cheers!

[petec]

Yes, it's interesting. This brings them to $690m of cash deployed this year (not counting deals announced in 2019 but closed in 2020). That's substantiallly all of 2020 operating cash flows, so cash is being deployed at a prodigious rate.

The last two deals involve four ships, built in 2011, 2012, 2018, and 2018, purchased for a total of $322m. Both deals generate a current run rate of $20m in ebitda, for $40m in total. Without knowing the lease details we can't calculate an IRR, but:
- If you assume 70% debt financing at 5% and a 20% tax rate (well above the corporate average) you get an ROE of 24% at the current run rate. If these flows are maintained for 4 years, equity is repaid.
- Total contracted revenues for the two deals are about $320. Assuming Seaspan's corporate average ebitda margin of 63% (using low end of 2020 guidance range) that's $200m in ebitda, or 5 years at the current run rate, acquired for $176m.

Sokol grew Mid-American at a 23% ROE for about 20 years.  His strength is capital-intensive businesses and making them very efficient.  Bing is no slouch either!  Cheers!

Yes. I’ve never really trusted that number because my source is Prem and I think he can be a bit sloppy with figures. But Sokol is definitely one of my big reasons for owning Atlas.

Actually, all you have to do is look at what Mid-American was earning when Berkshire acquired it in 1999 ($104M) and what it was making in 2010, shortly before Sokol left...$1,131M.  That's about 26% annualized over 10 years in earnings growth.  He essentially did the same thing 10 years earlier growing earnings from $10M to $104M.  Cheers!

Well, no. You also have to look at whether Berkshire contributed capital during that time. I’m sure you and others know the answer, but I don’t, which is why I take the CAGR as unproven!

[petec]

Why is Atlas Corp even paying a dividend when David can allocate capital at such a high rate of return? It makes no sense...

Yes, it's interesting. This brings them to $690m of cash deployed this year (not counting deals announced in 2019 but closed in 2020). That's substantiallly all of 2020 operating cash flows, so cash is being deployed at a prodigious rate.

The last two deals involve four ships, built in 2011, 2012, 2018, and 2018, purchased for a total of $322m. Both deals generate a current run rate of $20m in ebitda, for $40m in total. Without knowing the lease details we can't calculate an IRR, but:
- If you assume 70% debt financing at 5% and a 20% tax rate (well above the corporate average) you get an ROE of 24% at the current run rate. If these flows are maintained for 4 years, equity is repaid.
- Total contracted revenues for the two deals are about $320. Assuming Seaspan's corporate average ebitda margin of 63% (using low end of 2020 guidance range) that's $200m in ebitda, or 5 years at the current run rate, acquired for $176m.

I agree!  Probably two reasons for the dividend...legacy dividend from Seaspan...Washington family may want an income stream without selling any more equity.  Fat dividend now, but I suspect it will grow slowly in the future, and will probably drop to about 2.5-3% as the stock hits fair value...$14-15.  Cheers!

Agreed. And it won’t just be the Washingtons. There’s another big shareholder that needs cash flow, as discussed extensively on this board.

But also: while the hypothetical ROEs look great, I did point out that we don’t know the real IRR because we don’t know the lease terms (nor, indeed, the rates the ships will earn when the leases end). Also, these assets have *relatively* short-lives, and an x% ROE on a short lived asset is much less valuable than the same ROE on a long-lived one. Treat my maths as a paper exercise only.

[petec]

@Parsad, I don't think you answered this question upthread and I'd be really interested in your thoughts.

On APR - what makes you think they have found efficiencies fast? Ebitda guidance has not changed since the deal closed, and the major impact to ebitda growth has been Mexicali which was in place before the deal closed. I think it will be a great deal, but I don't see evidence that Atlas has made a big difference yet. Am I wrong?

[Kokomo]

https://www.eagleview.com/newsroom/2020/10/eagleview-hires-ryan-courson-chief-financial-officer/

BELLEVUE, Wash., October 1, 2020 – EagleView, a leading technology provider of aerial imagery, data analytics and GIS solutions, today announced the appointment of Ryan Courson as Chief Financial Officer. At EagleView, Courson will report to CEO Chris Jurasek, and will lead the finance, corporate development, and legal organizations.

[Parsad]

@Parsad, I don't think you answered this question upthread and I'd be really interested in your thoughts.

On APR - what makes you think they have found efficiencies fast? Ebitda guidance has not changed since the deal closed, and the major impact to ebitda growth has been Mexicali which was in place before the deal closed. I think it will be a great deal, but I don't see evidence that Atlas has made a big difference yet. Am I wrong?

https://www.bizjournals.com/jacksonville/news/2020/08/14/apr-energy-laying-off-50-employees.html

https://www.fool.com/earnings/call-transcripts/2020/08/11/atlas-corp-atco-q2-2020-earnings-call-transcript/

Please turn to Slide 7, where I will provide APR developments for the quarter. As we communicated at our 2019 Investor Day, we see tremendous upside potential in APR, and are working toward transforming the business to the next level. I'm very pleased to announce the recent appointment of Brian Rich as the President and COO. Brian has deep expertise and networks in the global energy and power sector and was formerly President and COO of APR between 2012 and 2015. Brian is well aligned with APR's priority focus going forward, and we are confident in his leadership to drive APR's operational excellence and sustainable growth.

APR's power fleet utilization for Q2 was supported by mobilization of eight turbines across three power plants in Mexicali. These eight turbines contributed $12 million of revenue in Q2, and we expect these projects to contribute approximately $41 million of adjusted EBITDA during 2020. Due to the mobile and fast power nature of the APR's fleet, we expect the utilization to fluctuate as these turbines are put on different contracts around the world. However, we are confident in our ability to maintain a strong utilization.

While COVID-19 has impacted APR's business through a reduction in overall global power consumption, we continue to structure the business as a long-term oriented energy solution provider. Our priority is to sustain and improve asset utilization, while focusing on extending the duration of existing contracts. This will require a shift in focus of our partnerships and solution offerings.

In addition, we will continue to be more selective on potential deployment opportunities around the world that meet our risk management criteria. We also continue to execute on our business strategy with strong commitment to ESG, divesting idle diesel generators and making operational improvements. Just to highlight, during the Q2, APR's overall plant availability was maintained at over 98% and an LTIR of 0.72.

Further down:

APR is a business secured by medium-term contracts with strong upside as additional capacity is deployed either on additional long-term projects or lucrative short-term fast track power solutions. While the decline in power consumption from COVID has slowed down our pipeline of potential projects, Brian Rich and his team are focused on deploying our assets and building a high quality pipeline of global opportunities.

Down further:

Bing Chen -- President and Chief Executive Officer

Yes Michael, I think the way to -- that's why I think the way we look at the APR business to a certain extent is similar to Seaspan's is that we're going to work on both opportunities to improve the utilization. One is through the extension. The other one is through the new business opportunities. As you know, that APR's fleet is more than half, it's under long-term contract. The current COVID obviously has certain impact in terms of the reductions to overall -- the power consumption. However, I think we believe it's temporarily slowing down the decision-making process and also of course result in some, I think, cancellation of the projects. For example, back in May, the Puerto Rico prefer had a demand for about 350 megawatts of power. But due to this COVID and for the peak season, they did not need to have this power, so therefore there are certain impacts.

However, I think as we continue to working on both the existing type of opportunities, that the management team are working on other opportunities such as flare -- we started looking at other opportunities such as flare to gas, LPG, and other grid stabilization, so to broaden our portfolio of offerings, so therefore, that we will have more opportunities to get the turbines utilized. So over the period, I think we are still confident we will be able to improve the turbines' utilization through the expansion and also the new opportunities.

Ryan Courson -- Chief Financial Officer

And then Michael, just as a clarification, for the third quarter pro forma for the Mexicali, what you'll see is 80% utilization for the APR power utilization fleet.

Cheers!

[Xerxes]

https://www.economist.com/business/2020/10/10/how-covid-19-put-wind-in-shipping-companies-sails

"Shipping is a business where, in the words of Martin Stopford of Clarksons, firms “make a living and occasionally make a killing”. This year, it appears, belongs to the second category. What is going on?"