With the weak GDP print last week, it should come as no surprise that Q1 labour productivity continues to struggle - falling 0.5% versus expectations for a 0.7% gain…

… which was compounded by growth in hourly compensation, pushing unit labour costs up 1.4% - the fourth straight sequential increase.

TransAlta (TA) dropped over 10% after announcing its $1B acquisition of two peaker plants in Colorado, which builds on its growing gas footprint…

… and upgrades the overall portfolio, with the acquired assets contracted for the next 27 years. Investors didn’t like the financing package, with the company issuing $350M of stock at 10x EBITDA to buy at 12.5x EBITDA…

… which looks dilutive until you do the napkin math on FCF impact. Driven by a weak outlook for Alberta power prices, management is calling for $400M of FCF at the midpoint this year…

… and expects $45M of run-rate FCF from the deal, with potential upside from incentive payments. That’s an ~11% increase in cash flow, funded by a ~6% increase in share count - so ~5% accretive to FCF per share.

That math works all the way up to $735M of base FCF, meaning Alberta spot prices would need to hit ~$220/MWh before the deal becomes dilutive - given a $1/MWh increase drops $2M to the bottom line…

… which is a scenario I don’t think anyone would mind, as the company would be printing cash. Interesting deal, I think the market might have this one wrong.

VersaBank (VBNK) reported Q2 results that edged past estimates, supported by US expansion - with an additional US$150M of structured receivable program funding…

… and management guiding to another US$650M+ in H2. That should drive a low-20s efficiency ratio south of the border by year end, translating to ROE improvement…

… which the market is starting to price in, with VBNK now trading at 1.5x book value after a ~10% post-print run in shares.

The commercialization of its real-time SRP could bring additional upside, which we cover in the full report:

Transcontinental (TCL-A) sold off 10% on its Q2 results, which missed on both revenue and EPS despite help from M&A - with a slowdown in organic volumes…

… which has been a consistent theme since 2023. Following the company’s $2.2B packaging unit divestiture…

… the print and media business is the sole focus for investors, which could result in choppiness until they settle on a fair value.

Was this forwarded to you? Join 10,000+ investors reading The Morning Meeting by clicking the button below.