Five more Canadian Edge Portfolio holdings released earnings this week: Atlantic Power Corp (TSX: ATP, NYSE: AT), Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF), Extendicare REIT (TSX: EXE-U, OTC: EXETF), PHX Energy Services Corp (TSX: PHX, OTC: PHXHF) and TransForce Inc (TSX: TFI, OTC: TFIFF).

Coming into earnings season, two of these companies–CAP REIT and TransForce–traded well above my buy-under targets. The test for them was whether they merited buy-target boosts. The other three–Atlantic Power, Extendicare and PHX–still sell below target. The key for them is whether they’re still solid enough to merit buying, or if something has changed to make them less attractive to us.

As it turned out, and as has been the case with every other Canadian Edge Portfolio Holding reporting thus far, the numbers have come in as good as or better than expected.

Portfolio picks have covered their distributions comfortably, including Extendicare, which has been challenged all year by Medicare cuts. Balance sheets have strengthened, as companies have generally eschewed risks and used low interest rates to term out debt over longer durations and cut interest costs. And growth strategies have stayed conservative and on track.

This is the foundation of a good case for sticking with all of these stocks. The only real question mark is whether the higher-priced among them are worth buying at a level above their current buy targets.

Here’s how these companies stacked up.

Atlantic Power Corp (TSX: ATP, NYSE: AT) reported its first results since completing the Capital Power LP merger last year. That deal increased its generating capacity by 143 percent, boosted outstanding shares by 64 percent and added operating employees for the first time. Atlantic now operates roughly half its total generating capacity, versus zero before this merger. The deal also extends the company’s reach into Canada, with eight plants in Ontario and British Columbia.

Atlantic had previously shown signs of its greater post-merger financial strength by acquiring a 30 percent stake in an Idaho wind farm in December 2011. It also bought 51 percent of an Oklahoma wind project and reached a deal to sell its 14.3 percent interest in Primary Energy Recycling Inc (TSX: PRI, OTC: PENGF).

Fourth-quarter numbers further confirmed that strength, as project cash flows rose 94 percent. The increase was primarily due to an additional CAD29.6 million in income from the addition of Capital’s 18 projects but reflected solid performance of previously owned operations as well. Weighted average availability of projects rose to 96.5 percent for the full year, from 95.2 percent the year earlier.

Cash available for distribution, not earnings per share, is the proper metric for evaluating Atlantic’s profits and dividend safety. Distributable cash for all of 2011 rose 25 percent, resulting in a payout ratio of 105 percent. That was well in line with management’s guidance for the year and the ratio is expected to fall to the 90 to 97 percent range in 2012, when the company will receive USD250 million to USD265 million in distributions from its various projects.

Looking ahead, Atlantic is fundamentally an asset growth story. The faster and more efficiently it’s able to build and buy high quality power assets, lock them into long-term sales contracts and hedge them against uncontrollable factors like fuel costs, the faster it will grow cash available for distribution and, by extension, the dividend, which management increased 5.1 percent when the Capital Power LP deal closed as promised.

I fully expect to see subsequent quarters in 2012 reflect growing efficiencies and higher cash flows, leading up to another dividend increase in December. Until then, Atlantic has one of the most transparent income streams in any business and no outstanding debt maturities until July 2014, when a USD190 million note with a 5.9 percent coupon rate comes due.

Bay Street opinion on the stock is bearish, as it has been since the Capital Power merger close. That’s very likely in part due to the higher interest costs Atlantic is carrying from issuing seven-year debt at an interest rate of 9 percent last fall. If these results are any guide, however, there’s not much to worry about on that score as far as the dividend is concerned.

As the company operates exclusively on unregulated wholesale power markets, there is a risk from falling power prices. Mainly, if prices stay down long enough, it will be very difficult to roll over expiring contracts and maintain current margins. That’s in large part offset, however, by the fact that 77 percent of Atlantic’s total capacity runs on natural gas, and most of the rest is renewable energy operating under long-term power purchase agreements, or PPAs. Consequently, real negative exposure is minimal.

Negotiations over the Auburndale power sales contract extension in Florida continue with some uncertainty over the final price. Ironically, the drop in gas prices may help the company get a better deal, as lower fuel costs can be passed along to would-be buyers of the power.

I want to see an agreement here as well as a couple more quarters of sound results. But Atlantic Power remains a solid buy up to USD16 for those who don’t yet own it.

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) reported a robust 10.4 percent jump in fourth-quarter revenue, pacing a 12.8 percent increase in net operating income, as it raised operating margins to 55.6 percent from 54.4 percent a year ago.

Profits are best measured based on funds from operations (FFO), which rose 18.7 percent in the quarter, as the company enjoyed both a 1.4 percent increase in average monthly rents and a rise in occupancy to 98.5 percent, from 98.4 percent a year ago. Per unit “normalized funds from operations”–which exclude one-time items–gained about 1 percent. That was because of a 17.4 percent increase in equity units to finance growth. The economics of real estate investment trusts is that acquisition costs generally precede cash flow. As a result, the investment from 2011’s equity issue will only show up in profits in 2012 and beyond.

In the meantime, however, the payout ratio was just 91.7 percent. That’s encouraging in a quarter that’s seasonally weak due to apartment REITs’ absorption of winter heating costs. The full-year payout ratio was 82.8 percent, virtually flat with last year’s tally.

The fourth quarter marked the 24th consecutive reporting period of stable or improved year-over-year same property net operating income, the key measure of how well the company is improving performance excluding acquisitions. The figure was a robust 4.6 percent in fourth quarter 2011, a clear demonstration that the REIT is not only adding properties but is successively increasing their profitability afterward.

That’s particularly encouraging given Canadian Apartment is still very much in the hunt for more acquisitions, and had the financial power to pay for them cheaply. The REIT was able to refinance CAD289 million in mortgages on its existing properties in 2011 for an average maturity of 8.2 years and average weighted interest rate of just 3.43 percent. That not only limits any refinancing risk faced by the REIT but cuts interest costs and locks in long-term financing for years to come. Debt-to-gross book value is now just 50.27 percent, down from 53.09 percent a year ago and one of the most conservative levels for leverage in the industry.

If I have a problem with Canadian Apartment REIT, it’s the lack of dividend increases, which is largely a function of management’s very conservative operating and financial policies. Only the highest-quality acquisition targets are considered and financing is always done with an eye on the worst case scenario.

Those same qualities, however, are what make Canadian Apartment REIT one of the very lowest-risk stocks in the Canadian Edge Conservative Holdings. My buy target remains USD20 for those who don’t already own it.

Extendicare REIT’s (TSX: EXE-U, OTC: EXETF) biggest challenge in 2011 was to lock in savings from an aggressive refinancing of the US dollar debt attached to its US properties. The owner and operator of senior care facilities announced this week that it’s now refinanced more than 95 percent of its obligations, a total of USD497 million, at a weighted average “all in” rate of 4.35 percent and an average term of 33 years.

It also refinanced CAD72 million of mortgages with an average interest rate of 9.81 percent in Canada at a weighted average rate of just 2.8 percent. Total annual interest savings from these moves is roughly CAD25 million. That enabled the company to revise downward its estimate of lost cash flow to the 2011 CMS (Medicare) Final Rule to a range between USD40 million and USD50 million, from a prior level of USD50 million to USD56 million.

The Final Rule hit average daily revenue rates from Medicare Part A by 11 percent and Managed Care by 7 percent in the fourth quarter of 2011 from the third quarter, and by 8.9 and 3.9 percent, respectively, from the year-earlier period.

The biggest question mark for Extendicare–and the reason I moved the stock from the Conservative to the Aggressive Holdings last year–is the unknown impact this drop in revenue and cash flow would have on the distribution. Up to now, management has maintained its outlook that it would be able to absorb the decline without cutting the dividend.

The good news is, according to CEO Tim Lukenda’s statement with the fourth-quarter earnings release, “Extendicare has been able to deliver an AFFO [adjusted funds from operations] in 2011 which has supported our distributions of 84 cents per unit.” That’s in large part due to the successful debt refinancing.

The bad news is, starting in 2013, Extendicare will face a further reduction in revenue from Medicare, due to the failure of the US Congress to pass legislation to cut debt and avoid a 2 percent across-the-board budget reduction. The estimated impact is USD2.5 million in 2013, rising to USD7.3 million in 2015. The company has also been forced to increase reserves for self-insurance against lawsuits in the US, which shaved AFFO for the year by another 51 cents per unit.

Finally, Extendicare is slated to convert from an income trust to a corporate structure on Jul. 1, 2012, per a vote taken by its Board last November. The REIT has been subject to the SIFT (specified investment flow-through) tax in Canada since 2007, so there will be no impact on funds available for distribution.

But management has made what amount to disclaimers, such as: “The declaration and payment of dividends by New Extendicare will be subject to the discretion of the New Extendicare Board, as to the amount of and if and when a dividend is declared and paid.”

On the plus side, the statement goes on to say that it will be “after consideration of the same factors that are currently taken into account by the REIT’s board.” That’s a good sign for the future dividend rate, though we won’t know for certain until the first post-conversion payout is declared in July.

Considering the headwinds Extendicare has faced this year, fourth-quarter results were quite solid up and down. Despite the massive Medicare cuts, overall revenue actually rose 0.5 percent from year-earlier levels, 0.6 percent sequentially from the third quarter. That was thanks to a 4.1 percent jump in Canadian revenue, which offset a 1.3 percent dip in US sales.

Fourth-quarter cash flow from US operations fell in half in Canadian dollar terms from 2010 levels, but was actually 26.8 percent higher than in the third quarter, while Canadian cash flow was flat. Overall cash flow was up 3.6 percent versus the third quarter in Canadian dollar terms, though 39 percent lower year over year. Cash flow margin was 7.5 percent, up from 7.3 percent in the third quarter and down from 12.4 percent in the year-earlier period.

Going forward, those cash flow figures will begin to reflect the cost savings initiatives put into place in 2011, as well as far lower reserve additions. Coupled with additional opportunities from efficiencies and the growth of the market, that should improve figures markedly in 2012.

AFFO, management’s principle measure of profitability, fell to CAD0.147 per unit in the fourth quarter. That was a drop of 65 percent from year-earlier levels. Excluding the CAD11.5 million change in reserves, the decline in AFFO was only CAD11 million to CAD0.28. AFFO was up sharply from the third quarter’s CAD0.054. Full-year 2011 AFFO, meanwhile, was CAD0.837 per unit, or CAD1.25 per unit excluding the additional reserves.

That was a quarterly payout ratio of 142.9 percent including the reserve and 73.9 percent excluding it. Those same figures were 100.4 and 67.2 percent for the full year. Facility maintenance capital expenditures were flat and modest at just 1.5 percent of revenue.

These payout ratios and the improvement in fourth-quarter numbers over third-quarter tallies do give me a great deal of confidence about Extendicare’s durability as a business. The company still must meet its projections for expense cuts, and there’s some uncertainty about the ultimate impact of Medicare reductions and the conversion to a corporation this summer.

But I’m keeping my buy target at USD10 for more aggressive investors who don’t already own the stock.

PHX Energy Services Corp (TSX: PHX, OTC: PHXHF) handed investors a major positive surprise with its fourth-quarter results, lifting revenue, operating days, cash flow and funds from operation–its key metric for profitability as a trust turned corporation–to record levels.

Management responded by hiking the company’s monthly dividend by 50 percent, the first boost since the company converted to a corporation.

The move lifts the yield on PHX stock to 6.5 percent. More important, it demonstrates clearly the underlying strength of the company’s business, which has grown rapidly in recent years but attracted skepticism due to rising costs. A rise in cash flow margins as a percentage of revenue from 13 percent to 17 percent should go a long way to answering doubters. And they point the way to further gains ahead, even if demand growth for horizontal/directional drilling equipment should slow this year as some fear.

Meanwhile, PHX continues to expand its capabilities, announcing another CAD38.9 million in capital spending this year to add to its fleet of drilling rigs. That’s somewhat lower than last year’s CAD49.3 million. But it does position the company against a possible pullback, as does a new bank credit facility inked last year. The growth focus remains markets outside North America, which management classifies as “international,” though the company continues to take advantage of robust demand here as well.

The 2011 payout ratio came in at a very conservative 29 percent. That rises to 43.5 percent with the dividend increase, though growth should take that considerably lower by the end of the year. That, in turn, could well open up an opportunity for another increase in the dividend, even as the company increases its presence, scale and marketing opportunities.

Breaking down operations geographically, Canadian revenue rose 39 percent in the quarter, fueling an 85 percent jump in profit. Operating days surged 23 percent and the company continued to sign on long-term contracts for its state of the art equipment and services.

US revenue rose 13 percent. Profit fell 57 percent despite a 31 percent jump in overall day-rates as operating days fell 14 percent and the Canadian dollar strengthened. But the company continued its transition to liquids rich areas, setting the stage for improved results in 2012. International revenue rose 20 percent, and profits were flat. That was due mainly to startup costs for certain operations, lower activity in some countries and the Canadian dollar. But here, too, the company continued to put operations into place for gains going forward.

To be sure, the energy services business is a volatile one, with activity heavily influenced by energy price swings beyond the control of PHX and its rivals. These results, however, are robust by any measure and the company’s focus on growing presence globally is paying off. The big dividend increase is the best possible sign of management confidence and is backed up by the company’s extremely low overall leverage.

My buy target for PHX before these results was USD14. That remains my target now, though the stock continues to trade well below it. Remember that it’s an Aggressive Holding, which means I expect more of our return to come from capital growth than dividends in the long haul.

TransForce Inc (TSX: TFI, OTC: TFIFF) scored sizzling growth in free cash (up 25 percent) and adjusted profit (up 63 percent) in its fourth quarter 2011. That was on the back of a 36 percent increase in revenue and higher operating margins, driven by both organic expansion and timely acquisitions.

Results were achieved despite what management described as a “hesitant economy,” in which overall volumes at certain business functions declined slightly. That’s yet another affirmation of TransForce’s long-term strategy of expanding its reach and service offerings, steadily building scale in what’s still a fairly fragmented Canadian freight market while limiting risk to uncontrollable factors such as fuel costs.

Adjusted profit–the primary metric for measuring dividend strength–was CAD0.34 per share for the quarter and CAD1.06 for the year. That adds up to a payout ratio of just 33.8 percent for the quarter and 43.4 percent for the year, numbers that should ensure another sizeable boost with the July payment to be announced in mid-May. The quarterly payout ratio based on free cash flow was just 14.7 percent, providing abundant funds for further expansion and balance sheet strengthening.

Breaking down the various divisions, Packaging and Courier services got a huge push, with revenue nearly tripling and profit surging 28.6 percent on asset additions. Less-than-Truckload, a somewhat smaller division, did better still with profit rising six-fold. And Truckload, Specialized Services-Energy and Specialized Services-Others also showed solid gains.

Some CAD373.5 million in acquisition costs lifted debt to 1.26 times equity, up from 1.02 a year earlier. The company, however, has no maturities in 2012 and 2013 and is using its abundant excess cash flow to slash debt coming due thereafter, particularly what’s drawn in the CAD450 million credit line that matures on Jul.16, 2014. Given the strength of these numbers it should have little if any problems making great progress this year.

CEO Bedard commented with the release of 2011 earnings that the company is operating under the assumption that “the 2012 economic environment will resemble that of 2012.” That is a continuing moderate recovery where company gains will be made by leveraging its increased scale and efficiencies, while keeping an eye out for further opportunities to expand through acquisitions, each of which is accretive almost immediately after consummation.

That may or may not prove to be conservative. But it does continue to insulate TransForce’s long-run growth and financial health from uncertainties in the current economy and credit markets. In my view, the current price–which is an all-time high in US dollar terms–is too high to chase for those who don’t already own this great company. But I’d still be a buyer on dips to USD16 or lower.

Numbers to Come

Here’s when to expect the next round of numbers of Canadian Edge Portfolio Holdings as well as links to analyses of companies that have already reported. I’ll  provide analysis of those yet to submit numbers in Flash Alerts over coming weeks as they appear and in the March CE.

I don’t send out Flash Alerts for companies not in the model Portfolio. Rather, I’ll recap those that have reported by Mar. 9 in the regular issue, along with payout ratios, in How They Rate. The rest will be addressed in the April issue.

Spring, summer and autumn earnings seasons are generally half as long, meaning the reported numbers are considerably fresher. Winter reporting season, however, is generally more valuable for full-year guidance, against which further results are measured.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–Mar. 8, 2012 (confirmed)
• Artis REIT (TSX: AX-U, OTC: ARESF)–Mar. 14, 2012 (confirmed)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–Feb. 29, 2012, Flash Alert
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Mar. 2, 2012 (estimate)
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPUF)–Feb. 15, 2012, Flash Alert
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–Feb. 29, 2012, Flash Alert
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–Feb. 9, 2012, Flash Alert
• Colabor Inc (TSX: GCL, OTC: COLFF)–Mar. 8, 2012 (estimate)
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–Mar. 6, 2012 (confirmed)
• Dundee REIT (TSX: D-U, OTC: DRETF)–Feb. 24, 2012, Flash Alert
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Feb. 24, 2012, Flash Alert
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–Mar. 21, 2012 (estimate)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–Mar. 23, 2012 (confirmed)
• Just Energy Group Inc (TSX: JE, OTC: JUSTF)–Feb. 9, 2012, Flash Alert
• Keyera Corp (TSX: KEY, OTC: KEYUF)–Feb. 16, 2012, Flash Alert
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–Mar. 13, 2012 (confirmed)
• Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–Feb. 15, 2012, Flash Alert
• Provident Energy Ltd (TSX: PVE, NYSE: PVX)–Mar. 6, 2012 (confirmed)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–Feb. 15, 2012, Flash Alert
• Shaw Communications (TSX: SJR/B, NYSE: SJR)–Jan. 12, 2012, Flash Alert
• Student Transportation Inc (TSX: STB, OTC: STUXF)–Feb. 15, 2012, Flash Alert
• TransForce Inc (TSX: TFI, OTC: TFIFF)–Feb. 29, 2012, Flash Alert

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–Feb. 7, 2012, Flash Alert
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–Mar. 14, 2012 (confirmed)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–Feb. 9, 2012, Flash Alert
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–Feb. 24, 2012, Flash Alert
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–Mar. 16, 2012 (estimate)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–Feb. 24, 2012, Flash Alert
• Extendicare REIT (TSX: EXE-U, OTC: EXETF)–Feb. 29, 2012, Flash Alert
• Newalta Corp (TSX: NAL, OTC: NWLTF)–Feb. 16, 2012, Flash Alert
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–Feb. 15, 2012, Flash Alert
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–Mar. 7, 2012 (confirmed)
• Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE)–Feb. 16, 2012, Flash Alert
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–Mar. 9, 2012 (estimate)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–Feb. 29, 2012, Flash Alert
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–Mar. 5, 2012 (confirmed)