Coal and dividends: investing in housing and communal services business PPL

PPLPPL30,53 $

What do they earn

It is a generating and energy supply company. PPL - housing and communal services holding, uniting several housing and communal services companies in different regions. According to the company's annual report, its revenue is arranged as follows:

1. Housing and Utilities Enterprise in Kentucky — 57,89%. Final segment margin — 13,97% from its proceeds. In the same state are located the generating capacities of the company.
2. Housing and Public Utilities Enterprise in Pennsylvania — 42,11%. Final segment margin — 18,52% from its proceeds.

According to the structure of customers, the company's revenue is divided as follows::

1. Residential buildings - 46,5%.
2. Corporate Sector — 21,89%.
3. Industry - 10,94%.
4. Other - 6,61%. This is street lighting., public facilities.
5. Wholesale buyers from municipal and other spheres — 1,54%.
6. Power lines — 12,52%.

The company works, as you might have guessed, only in the United States - in these two states and a little more in Virginia.

The main sources of energy from the company are as follows::

1. Coal - 80,27%.
2. Gas - 18,53%.
3. Hydroelectric power plants — 1,12%.
4. Solar energy — 0,08%.

Revenue of the company by types of clients, million dollars

Arguments in favor of the company

Looks like it's stable. This is a utility company, what in the eyes of investors should give the company an image of reliability. Times are extremely unstable these days., and in theory, this business can attract many investors due to the fall in risk appetite in the market as a whole and the fact that fund managers have an excess of free money..

Many now fear a recession, and housing and communal services have a reputation for recessionary resistance., i.e. protective, Sector. AND, paraphrasing Pelevin, "on this fragile assumption rests the building of any PPL investment".

Dividends. PPL pays 0,8 $ per share per year, and if you do not know the history of dividend payments of the company, then you can solve, that given the stability of its business, you should take its shares for the sake of obtaining passive profitability..

Maybe, a number of investors will decide so: The company's dividend yield is 2,7% per annum, and that's a little bit more, what the average American investor can realistically count on in the case of a deposit. U.S. banks have a surplus of client money in their accounts and even after raising rates FED there is no motivation to significantly increase deposit rates.

So for many investors, PPL dividends are not pennies., and "a way to protect money from inflation at least a little". So there is some chance, that they will get into the company's shares like herrings in a barrel for the sake of these payments - and quotes will grow due to their influx..

Moreover, market participants expect a decrease in dividend payments on S&P 500 in general, and in view of the apparent reliability of PPL, they think it is more stable in this regard..

Not insanely expensive. The company's multipliers are at an acceptable level: P / S = 3,54 and P / E = 36,76. Capitalization is also not very large - approximately 21,76 billion dollars, which will make stocks very sensitive to the influx of investors, especially institutional.

Maybe, even starting from it, the company decides to buy some fund.

What can get in the way

Small forage base. Almost all of PPL's money is made in Pennsylvania and Kentucky.. Respectively, the growth of its incomes can not greatly outpace the growth rate of the population of these states.: to 2030 Pennsylvania's population will grow by 2,47%, and Kentucky on 4,25%.

Therefore, the company is motivated to expand beyond other states – it recently bought a housing and communal enterprise in Massachusetts for 5,3 billion.

Accounting. PPL over 20 billion dollars in arrears, out of which 3,03 billion must be repaid within a year. Basically, there is enough money directly at the disposal of the company to close all term debts: eat 4,249 billion in accounts.

But in the context of rising rates and rising borrowing prices, this is, certainly, problem. Especially in light of the company's desire to expand — and yes., Massachusetts deal not yet closed, so that money, what the company has, she will have to spend and still collect debts.

Dividends. In February, the company cut dividends by 52%. Well, what can I say?? Think, the well-known analyst Hesiod in my place would say something like: "Gods always shave greedy hamsters the wrong way".

Dividends cut for the purchase of a utility company in Massachusetts. And it will be necessary - they will cut again. And again. And again. Dividends will cut so much, how much do you need, therefore, you should not rely heavily on them.

And what's interesting is that it didn't affect the stock much.: first they fell, but then they rebounded and are now even higher, than in October 2020 of the year, when their dividend yield was 4,33% per annum. But in October 2020 such a yield was much more attractive, how 2,7% per annum now.

Dirty here you have. A huge part of the company's electricity comes from coal., and this may expose its quotes to persecution by the ESG click., and make it harder to obtain loans. Certainly, PPL makes bold predictions of transition to clean energy sources, but something I'm not sure about, that the "progressive inquisition" will find the arguments of the PPL persuasive.

Every night they take on the old.. Infrastructural facilities of the company require maintenance, which creates additional risks of debt growth and payment cuts.

Resume

PPL has a large set of problems, that's why, it seems to me, it is best to take these stocks in the fall on the eve of the terrible American winter and, Consequently, growth of electricity consumption in the United States.