Problems and potential riddle ICD
With a mounting debt, high fuel costs and a lack of dividends for shareholders, ICD Utilities Limited (ICD) has struggled to achieve profitability.
But a strong Canadian shareholder and its monopoly in Freeport could make it an effective medium-to-long-term play for prospective investors, according to Jamaal Stubbs, senior analyst at CFAL.
That said, investors in ICD should go in with eyes wide open.
“The main aspect we should keep in mind is the lack of dividends,” he said.
“There is also a concern about the debt. As a power company it’s relatively normal to have a lot of reinvestment and debt, but they’re now expanding with an $80 million plant that has to be paid for. They should be able to service the debt, but one should be concerned given the lack of profitability.”
According to recently released financial statements, ICD, whose sole asset is a 50 percent stake in Grand Bahama Power Company (GBPC), reported a net loss of $1.220 million as of December 2010.
GBPC’s loss of $2.076 million, partly attributed to high fuel costs, is the main reason behind ICD’s net loss, Stubbs added.
Through its stake in GBPC, ICD is indirectly responsible for $46.6 million in long-term debt, and this past July, the power company began construction of a $80 million diesel plant to boost production and efficiency.
It should be completed in 2012, and according to GBPC, it will not result in higher costs for customers.
The plant adds considerably more debt onto the company, Stubbs pointed out, and combined with a lack of dividends, “it’s a real concern”.
“They are operating in an economy that is still weak,” he added.
“Yes, there are some potentially positive views on the horizon to jump start the Grand Bahama economy, but that’s a big if. They have struggled to earn a profit and now they have taken on further debt.”
Emera, the Canadian energy firm, is now the major shareholder in GBPC, which could also bode well for the company.
A larger parent company with international experience and sources of funding brings with it many benefits, Stubbs felt. Their ability to hedge against rising fuel costs may play an important role in the future.
GBPC has taken its fair share of hits over the years, he said.
After hurricanes in 2004 and 2005 destroyed or damaged much of its infrastructure, the company was forced to replace a large portion of its network only to then face the subsequent effects of the financial crisis in 2008.
Meanwhile, more recently GBPC has received criticism from the local community in terms of high prices and unfair charges.
Emera, the company’s ability to hedge against fuel costs, the terms of the debt and overall development in Freeport will all serve as factors as to whether ICD enjoys growth in the future.