Something intriguing is brewing beneath the surface at ATCO, the Canadian infrastructure giant known for its steady earnings and reliable dividends. While analysts focus on the usual suspects – Structures & Logistics, Canadian Utilities, and the recent sale of the fossil fuel generation portfolio – a less heralded segment is quietly making waves: Neltume Ports.

ATCO acquired a 50% stake in Neltume Ports in late 2018, a move that initially seemed like a curious diversification play. After all, ports are a complex business, far removed from ATCO's traditional domains of energy and infrastructure. However, a closer look at the current quarter transcript reveals a tantalizing possibility: ATCO, through Neltume, might be stealthily constructing a global ports empire.

Dennis DeChamplain, ATCO's Executive Vice President and CFO, dropped several hints during the Q4 2019 earnings call that point towards an ambitious ports strategy. Firstly, he highlighted Neltume's strong performance, noting its adjusted earnings of $15 million in 2019, a significant jump from $4 million in 2018. This, despite global trade headwinds, underscores Neltume's ability to deliver consistent results.

DeChamplain then emphasized the "relatively high" deal flow at Neltume, confirming the company's active pursuit of acquisitions in both North and South America, even hinting at possibilities in Canada. Furthermore, he disclosed that Neltume still possesses a "very healthy cash balance" – around $200 million – specifically earmarked for growth initiatives. This hefty war chest, combined with the robust deal flow, suggests that ATCO is seriously committed to expanding its ports footprint.

Now, consider Neltume's recent moves. In 2019, they acquired a controlling stake in Terminal Puerto de Arica, enhancing their operational influence. More recently, they entered a joint venture with Terminal Zarate to construct a roll-on, roll-off automobile terminal in Mobile, Alabama. This strategic partnership not only diversifies Neltume's geographical and product offerings but also provides valuable insights from a seasoned partner, potentially paving the way for future roll-on, roll-off ventures.

The pieces are starting to fit together. ATCO, through its well-capitalized and aggressively expanding Neltume subsidiary, appears to be strategically positioning itself as a major player in the global ports landscape. This under-the-radar approach might be ATCO's way of securing valuable assets and gaining operational expertise without attracting undue attention or sparking competitive bidding wars.

Here's the kicker: While DeChamplain maintains that ATCO's current dividend payout ratio in the 50s is comfortable, he also emphasizes their commitment to "creating additional value and creating the right environment for future dividend increases." Could the future earnings growth from a blossoming ports empire be the secret ingredient to unlocking even more generous dividends for ATCO shareholders?

To test this hypothesis, let's crunch some numbers. If Neltume successfully deploys its $200 million growth capital and achieves an 8% return on investment, it would translate to an additional $16 million in annual earnings for ATCO. Assuming a 50% payout ratio, this would contribute an extra $8 million towards dividend payments. While this may seem modest in the grand scheme of ATCO's overall earnings, remember, this is just the beginning.

As Neltume continues to expand its network of ports, the potential for future earnings growth becomes truly compelling. Imagine a future where ATCO, once known primarily for its energy and infrastructure businesses, emerges as a dominant force in global ports, driving substantial value for shareholders and delivering ever-increasing dividends. This is the silent transformation taking place at ATCO, and astute investors should take notice.

Neltume Ports Earnings Growth

The chart below shows the significant increase in Neltume Ports' adjusted earnings from 2018 to 2019, as highlighted by Dennis DeChamplain during the Q4 2019 earnings call.

ATCO's Financial Highlights (As of June 18, 2024)

"Fun Fact: Neltume Ports operates 16 ports across North and South America, handling a wide variety of cargo, from copper concentrate to automobiles. Their diverse portfolio and strategic partnerships position them for continued growth in the global ports market."