First-quarter earnings reporting season continued in earnest this week, with a baker’s dozen reporting since my last Flash Alert on May 8. Only six Canadian Edge Portfolio companies have yet to turn in numbers, and virtually all of them should be in by the end of next week.

If there’s a common theme in what we’ve seen it’s that CE companies are encountering a more difficult environment than they expected at the beginning of 2012. But they’re navigating it well.

Several companies in this batch of 13 were heavily exposed to the steep first-quarter drop in natural gas prices. But as producer Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF) clearly demonstrated, financially strong and conservatively run companies can weather almost anything–and even keep growing through it.

I’m restoring Peyto to a buy up to USD20 for those who don’t already own it. I’m also returning fellow Aggressive Holding Extendicare REIT (TSX: EXE-U, OTC: EXETF) to a buy up to USD9 for aggressive investors. Note that both of these companies will report their next set of numbers on or about Aug. 10, 2012.

The rest have earned their buy recommendations all over, though only up to the listed target prices. Investors may have lost their brief opportunity to buy May High Yield of the Month Keyera Corp (TSX: KEY, OTC: KEYUF), which soared 6 percent the day it announced the robust results highlighted below. But each has been below target buy prices on many occasions in recent months. Be patient and you’ll get your price.

Ag Growth International Inc’s (TSX: AFN, OTC: AGGZF) first-quarter revenue rose 9.5 percent, fueling a 3 percent increase in adjusted cash flow and a 10.5 percent boost in net profit per share. CEO Gary Anderson pronounced the results “roughly in line with our expectations.”

The market for portable grain handling equipment is expected to get a boost this year from the highest forecast corn planting in the US since 1937. US first-quarter revenue was up 15 percent from last year’s record levels and accounted for 61.7 percent of overall sales.

Demand in Western Canada is also shaping up much more favorably than last year, when planting was severely affected by flooding. Canadian revenue rose 22 percent in the quarter and accounted for 26.9 percent of overall sales.

Ag Growth has apparently worked out its supply and production challenges that hurt last year’s results, adding needed capacity while getting a handle on costs at its key Twister facility in North America. This includes steel costs, which account for approximately 30 percent of production expenses. The company uses long-term purchase contracts to mitigate price swings and is also having more success passing steel costs onto customers as price increases.

Last year Ag Growth established offices in Columbia, Argentina and Latvia. The company’s sales and supply network now extends from Russian and Eastern Europe to Latin America, Southeast Asia, the Middle East and Africa. And global sales backlog is “significantly” higher now than a year ago, with Finland-based Mepu also getting its costs under control.

All in all, strong first-quarter results point to another promising year at Ag Growth. That increases the possibility we’ll see another boost in the dividend later this year. Dividends are paid from funds from operations (FFO) rather than earnings per share; FFO was basically flat in the first quarter versus year-earlier levels.

Ag Growth’s business is seasonal, with the first quarter typically weaker than the rest. FFO covered the dividend with a 98 percent payout ratio, same as in 2011. I expect we’ll have to see move improvement in subsequent quarters before management will boost the dividend.

But in any case Ag Growth trades below my buy target of USD45 and is a bargain for anyone who doesn’t already own it.

Artis REIT (TSX: AX-U, OTC: ARESF) posted an 11 percent increase in its first-quarter funds from operations (FFO) per share over 2011 levels. That was fueled by a 29.8 percent jump in revenue and a 35.5 percent bump in net operating income, offset by a more than 20 percent increase in equity to finance acquisitions and pay off debt.

Artis’ payout ratio based on FFO per share dropped to 87.1 percent from 96.4 percent a year ago. This continues the pattern of improvement from recent quarters, as the office and industrial property REIT moves closer to being able to raise its already generous distribution. Debt-to-gross book value, meanwhile, fell to just 47.6 percent from 50.7 percent a year ago.

The REIT has remained an aggressive acquirer so far in 2012, closing three transactions prior to the end of the first quarter and four since. Some CAD216.7 million of the closed purchases were in Canada, but another CAD75 million were in the US. Of pending deals CAD218.6 million are in Canada, while USD117 million are in the US.

That’s in line with management’s ongoing plan to add selectively to US holdings while focusing the bulk of its efforts on diversifying within its home country.

Portfolio occupancy has been steady, coming in at 95 percent despite the large number of new properties under management. And the REIT estimates its current rents are 5.1 percent below market on a countrywide basis.

Average lease term is 7.6 years, with no top-20 customers’ deals expiring up this year. Nearly two-thirds of the portfolio is occupied either by government or “national” tenants. No tenant accounts for more than 2.7 percent of overall revenue, severely limiting exposure to a single failure.

Artis’ current portfolio lineup is a direct result of management’s diversification plans the past several years, which have resulted in a mix of 22 percent retail, 37.8 office and 40.2 percent industrial in terms of square feet. By that same measure only 29.9 percent of the properties are in Alberta, with 20.1 percent in Manitoba, 11.2 percent in Ontario, 9.4 percent in British Columbia, 5.6 percent in Saskatchewan and 23.8 percent in the US.

When I initially recommended Artis it was almost entirely focused on Alberta, which made it highly vulnerable to the ups and downs of the energy patch. These results and the portfolio’s broad diversification now show clearly it’s a far more secure entity worthy of a higher valuation.

Dividend growth isn’t likely soon because of management’s goal to obtain an investment-grade credit rating. But I’m raising my buy target to USD16 for those who don’t already own Artis REIT.

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) posted a solid 10.3 percent boost in overall revenue, 1.8 percent for “stabilized” properties, which essentially exclude acquisitions.

Normalized funds from operations (NFFO)–the key measure of profitability–rose 10.6 percent for the first quarter. That drove the payout ratio down to 83.5 percent from 92.6 percent in the year-earlier quarter.

The first quarter, like the fourth quarter, is typically light for NFFO, as REITs such as Canadian Apartment typically pay their customers’ heating bills. Dividends are usually set based on full-year numbers rather than a single quarter’s. The REIT’s ability to drive down its payout ratio so significantly in an otherwise seasonally weak quarter is very impressive and bodes well for the rest of the year.

Canadian Apartment’s signature strength has always been portfolio quality, for which management has often sacrificed the opportunity to grow more quickly. Occupancy was again quite strong in the first quarter at 98.3 percent, identical to the year-earlier quarter, with vacancies reflecting mostly turnover and property upgrades. Average monthly rents rose 1.7 percent, and the REIT continued to have success renewing tenants and leasing properties where there are vacancies.

Efficiency is another constant at the REIT. Lower operating expenses and higher revenue pushed net operating income margin to 55.4 percent from 53.9 percent a year ago. Operating expenses as a percentage of operating revenue, meanwhile, dropped to 44.6 percent from 46.1 percent a year earlier. Monthly rents rose 2 percent versus the year-ago period, accelerating from last year’s 0.8 percent increase. The company also completed CAD43.4 million in mortgage refinancings with an average interest rate of just 2.63 percent and an average term to maturity of 7.3 years.

Like most REITs Canadian Apartment’s long-run growth comes from successfully absorbing high-quality acquisitions. This management continues to achieve, with 14 properties acquired for CAD455 million in late April. The REIT also successfully sold CAD155.8 million in non-core properties, boosting scale and efficiency.

Canadian Apartment has generated 25 consecutive quarters of stable or rising net operating income. This record should continue through 2012 and beyond.

The biggest question mark is when the REIT will raise its distribution.

During a conference call to discuss first-quarter results CEO Thomas H Schwarz responded to that question this way: “I think we can look forward to a distribution increase.”

Until words become deeds my buy target for Canadian Apartment REIT remains a price of USD22 or less.

Chemtrade Logistics Income Fund (TSX: CHE-U, OC: CGIFF) posted sharply lower first-quarter 2012 distributable cash flow (DCF) after maintenance capital expenditures versus 2011. That was despite a 6.2 percent jump in adjusted cash flow from operating activities and 34.4 percent increase in revenue due to the acquired operations and better sulphuric acid prices.

CEO Mark Davis noted that “demand from our customer base was stable” during the quarter. The lower DCF figure was due to a recovery of insurance proceeds last year. All three business units performed well, with sulphur products and chemicals’ cash flow rising 37.9 percent, pulp chemicals showing 4.8 percent higher revenue though slightly lower cash flow on input costs, and international revenue up a little more than 10 percent.

Mr. Davis expects “stable” demand for Chemtrade’s products for the rest of 2012 and forecast “another strong year” with the distribution rate “sustainable.” The payout ratio based on first-quarter DCF of CD0.58 per unit was just 51.7 percent. That leaves plenty of room to finance expansion and keep debt under control.

During the conference call, Mr. Davis responded to a question about what management intended to do with free cash flow left over from the dividend. The short answer was to wind down debt. There are now no outstanding maturities until Mar. 2017, when a CAD400 million credit line must be rolled over.

These strong results have pushed Chemtrade units back well above my buy target. But yielding just south of 8 percent, Chemtrade Logistics is a strong buy for aggressive investors on any dip below USD15.50. And when the company does raise its distribution, I’ll be pushing up my buy target.

Cineplex Inc (TSX: CGX, OTC: CPXGF) is boosting its monthly dividend 4.7 percent to a new rate of CD0.1125 per share. That comes on the back of record first-quarter results, featuring a 12.1 percent jump in revenue and theater attendance, 31.7 percent higher cash flow and a 22.4 percent leap in adjusted free cash flow per share, the primary metric from which dividends are paid.

Adjusted free cash flow of CD0.48 for the quarter pushed the payout ratio down to 70.3 percent after the dividend boost. The company also increased its cash flow margins to 16.6 percent for the quarter, up from 14.1 percent the year before.

One major catalyst for the results was a far improved fare of movies, with “The Hunger Games” and Dr. Seuss’ “The Lorax” leading the way. The second quarter if anything could be even more rewarding, with the blockbuster “The Avengers” hitting screens throughout North America and “The Hunger Games” still drawing in viewers.

The company’s continued expansion of “enhanced experience” theaters such as those incorporating IMAX technology ensures it will get its fair share of this business. During the quarter it converted 219 projection systems to digital, pushing digital penetration to 82 percent of its total theater base. It also installed 16 RealD 3D systems, bringing its total to 412 screens in 122 theaters.

Cineplex’ efforts to diversify revenue also bore fruit. One of these initiatives is the SCENE loyalty program, which it’s now expanded to 3.5 million members. The company also continues to push on with interactive and e-commerce measures, furthering its bond with a new generation of younger viewers.

Merchandising revenue was 5.4 percent higher during the quarter and looks set to go higher the rest of the year under a joint venture deal with Starburst Coin Machines to provide a wide range of games for company facilities. Cineplex.com saw an all-time high of 95.5 million for page views during the quarter, and Cineplex Mobile is ranked the eighth most popular wireless application in Canada, reaching 8.3 percent of users. Concession revenue rose 18.2 percent.

In short, this is a company firing on all cylinders and on track for growth for the rest of the year and beyond.

The stock’s run since the end of January has left it well above my current buy target of USD26. And given the massive insider selling this year on that run-up I’m not inclined to chase it there. If you own this stock, by all means stick with it. I’m also raising my buy target to USD27, at which point the stock would yield roughly 5 percent.

Crescent Point Energy Corp’s (TSX: CPG, OTC: CSCTF) first-quarter funds from operations (FFO) per share surged 22 percent, as the company rode a combination of surging output and robust pricing for oil and natural gas liquids (NGL). That pushed the payout ratio down to 51 percent from 63 percent last year.

The company’s output of crude oil and NGLs increased 21 percent from year-earlier levels, pushing overall production up 19 percent to a new record of 90,285 barrels of oil equivalent per day (boe/d). Output was also up 11 percent from fourth-quarter levels. Impressively, roughly 7,000 boe/d of output was added “at the drillbit,” i.e., working on existing properties. Production guidance for full-year 2012 is only 88,500 boe/d, largely because of 11,000 boe/d of shut-in output due to spring breakup. But management is maintaining exit guidance of 97,500 barrels of oil equivalent.

The production mix was a very favorable 91 percent liquids, primarily weighted toward light crude oil. Average selling prices for these rose 7 percent in the quarter. As a result the 40 percent drop in realized selling prices for natural gas (9 percent of output) had little impact on profitability.

Crescent Point’s rising production also had the salutary effect of cutting operating expenses to CAD10.51 per barrel of oil equivalent, down 16 percent from year-earlier levels. Transportation costs per barrel of oil equivalent were also reduced by 6 percent, and further scale advantages appear assured in coming months.

The company’s Stoughton facility is expected to increase from 8,500 barrels per day to 16,000 barrels per day by early third quarter, dramatically increasing its access to oil shipping via rail–and to get more output from the shipping constrained Bakken region.

The company spent CAD387.8 million on drilling and development activities during the quarter as well as CAD87.8 million on acquiring land and for seismic activities. It also spent some CAD1.3 billion on acquisitions of producing properties with vast potential reserves, including deals for Wild Stream and some PetroBakken Energy Ltd (TSX: PBN, OTC: PBKEF) assets that closed in March. These will boost cash flows the rest of the year. So will the purchases of Reliable Energy, which will close May 1, and Cutpick, which was announced May 3.

Robust oil prices, falling costs and rising production have enabled Crescent to fund its capital expenditures and steady dividend, even while keeping debt at a low level. The current debt-to-12 month cash flow ratio is less than 1-to-1, and most of the company’s credit lines remain untapped. Management has also locked in cash flows by hedging, 61 percent of projected output in 2012, 52 percent in 2013, 33 percent in 2014 and 14 percent in 2015.

Operating in a volatile business like energy production means Crescent must always be flexible. But as only one of two former income trusts never to cut dividends–Vermilion Energy Inc (TSX: VET, OTC: VEMTF) being the other–management has proven its ability to weather all manner of markets. And with CAD1.25 billion in capital spending planned for the full year 2012, output should keep rising and the company’s economics improving.

It’s a fact that the stock price is going to follow oil prices, and investor perceptions of where oil is going to go. That means volatility for anyone who owns this stock. But this is one producer whose operations are solidly protected against the ups and downs and is on track to build its output for a long time to come. My buy target for Crescent Point remains USD48 for anyone who doesn’t already own it.

Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF) posted a 7.1 percent increase in its first-quarter revenue over year-earlier levels. Cash flow followed suit with an 8.8 percent gain, including CAD0.7 million in acquisition costs. Adjusted net income–the primary measure of company profits–came in at CAD0.371, down from CAD0.4275 a year earlier due to the issue of 6 million shares to fund the Mortgagebot acquisition. That was still good enough, however, for a solid payout ratio of 83.6 percent.

Davis + Henderson continues to acquire high-quality assets, such as a 100 percent equity interest in Avista Solutions on May 3 for USD40 million. The deal expands company expertise to a new variation of mortgage loan origination software as well as geographically to the southern US. It complements the USD9.8 million purchase of a technology and cloud computing company based in California that was announced in late April.

The bulk of Davis’ business is, of course, with major Canadian banks, which remain in the pink of health, at least judging by their recent results. These operations continue to fund organic growth of the business, which now consists of 40 percent of revenue from payment solutions, 22 percent from loan registration and recovery services, 18 percent from loan servicing, 15 percent from lending technology services and 5 percent from business service solutions.

Payment solutions include the company’s paper cheque business but also now a wide array of subscription fee-based enhancement services directed toward account opening activities. These have grown rapidly in recent years, with the result that Davis + Henderson has now effectively made the jump to a web-based company, even as it continues to make money from high-margin paper services.

Davis + Henderson’s overall business is seasonal to some extent. But management affirms with these results that the company is on track for a solid 2012, with a dividend increase likely to be announced this summer. Davis + Henderson is a buy up to USD20 for those who don’t already own it.

Extendicare REIT (TSX: EXE-U, OTC: EXETF) continues to manage the impact of last year’s 11.1 percent cut in Medicare funding to its skilled nursing centers in the US. The company posted a solid payout ratio of just 65 percent of adjusted funds from operations (AFFO) in the first quarter, the lowest level in several quarters.

AFFO was actually up to CAD0.322 per unit from CAD0.294 a year ago. That was despite a 12.5 percent drop in Medicare Part A and 6.9 percent decline in Managed Care average daily revenue rates from third-quarter 2011 levels.

The key is a comprehensive program initiated by the company to cut operating costs by roughly CAD24 million. CEO Tim Lukenda now puts the annualized adverse impact to cash flow from the Medicare cuts at just USD40 million, far less than initially anticipated.

In addition, the company has now “substantially” completed refinancing of USD636 million in US debt with USD512 million in HUD-insured mortgages and USD124 million of cash on hand. That’s realized USD20 million in annual interest savings, as first-quarter interest expense came in 24.5 percent below the year-ago quarter.

The company continues to face considerable uncertainty from future Medicare funding, as the US government struggles to bring itself closer to fiscal balance in 2013. The good news is the Centers for Medicare & Medicaid Services (CMS) apparently doesn’t plan on proposing policy changes that would affect the skilled nursing prospective payment system for 2012-13. Rather, the company can expect a net 1.8 percent Medicare increase on Oct. 1, 2012.

Meanwhile, Canadian operations actually saw a CAD1.4 million improvement in cash flow. They’re only 8.8 percent of overall revenue but are nonetheless a stabilizing element. Overall US revenue for the quarter, meanwhile, was flat with the fourth quarter 2011, a sign the impact of Medicare cuts is now factored in.

In another development, Extendicare unitholders have now approved the company’s conversion to a tax paying corporation on Jul. 1. That leaves court approval, which should be forthcoming in mid-May.

These solid results induced Mr. Lukenda to state during his company’s post-release conference call  that the company would continue to pay monthly distributions of CAD0.07 per share after the conversion. That’s a huge plus, though management also warned during the call that the payout ratio is likely to rise in coming quarters.

That still leaves the uncertainty over Medicare payments, particularly once US elections are over in November. But these results and the conversion to a corporation have improved the safety factor substantially here, while the 10 percent yield more than prices in a now less-likely cut.

Accordingly, I’m restoring Extendicare to a buy up to USD9 for risk-tolerant investors who don’t already own the stock.

Keyera Corp (TSX: KEY, OTC: KEYUF) reported strong results at its fee-based gathering and processing and natural gas liquids (NGL) infrastructure businesses. Gathering operations posted the second-highest operating margin in history up 9 percent, while NGL infrastructure margins rose 59 percent over last year to a new record.

These gains, however, were more than offset by a 68 percent drop in operating margin at the Marketing operation, which was dragged down by losses in propane marketing. The latter was heavily impacted by mild winter weather, to a lesser extent growing supplies.

Overall cash flow in the quarter slipped 5 percent. Distributable cash flow–the primary measure of profitability–fell to CAD47.2 million, pushing up the payout ratio to 79 percent. That was down from CAD65.3 million in the prior year, when Keyera’s payout ratio was only 49 percent on a 10 percent lower dividend.

On the plus side, the Marketing business continues to benefit from robust pricing for condensate, butane, iso-octane and crude oil midstream. Management expects continued weakness in propane but has taken steps to mitigate the possibility of future losses of similar magnitude, such as “acquiring propane at significantly lower prices compared to most of 2011” and adjusting its hedging strategy.

Keyera also continues to invest heavily in its fee-based businesses, which aren’t directly exposed to volatile commodity markets. The company spent CAD23.7 million on organic growth projects and another CAD247.1 million on acquisitions during the quarter, a nearly ten-fold increase over the prior year. That includes the purchase of an iso-octane producing facility in Alberta completed in January, two joint ventures with Enbridge Inc (TSX: ENB, NYSE: ENB) to develop rail and truck assets to serve the Athabasca oil sands, and enhanced throughput and processing capacity at four NGL facilities.

The company expects to bring major expansion projects to completion in the Edmonton/Fort Saskatchewan area in time for a planned Jul. 1 in service date, under an agreement with Imperial Oil. The construction of a 13th storage cavern at the Fort Saskatchewan facility is expected to commence in the third quarter. Overall, the company expects CAD125 million to CD175 million in growth capital spending in 2012, not counting acquisitions.

First-quarter fee-based operating margin of CAD65 million alone covered the distribution by a 1.06-to-1 margin. This figure looks set to grow over the next year as new assets come on stream.

Meanwhile, marketing margin looks set to turn up as well, increasing the cushion for the payout and keeping the door open to a dividend increase in late 2012.

Keyera has kept its balance sheet strong, completing a CAD202 million equity issue in the first quarter and announcing a CAD200 million private placement of debt last month. Both will pay off the company’s short-term debt, as well as fund future capital spending.

Management’s discipline has been not to build any project unless there’s a contractural commitment for the new capacity. Low natural gas prices may slow its development of fee-based assets in the rest of 2012. But current projects are contracted, as are those underway, which will protect cash flow going forward. And there’s no chance this company will become over-leveraged and therefore vulnerable, even if gas prices remain depressed and development activity for NGLs slows from currently robust levels.

Keyera Corp shares have come down a considerable way from their early January peak and are now basically back where they traded in early summer 2011. That puts the May High Yield of the Month squarely on the bargain counter as a buy up to USD42 for those who don’t already own it.

Newalta Corp (TSX: NAL, OTC: NWLTF) is raising its dividend by another 25 percent this week to a new quarterly rate of CAD0.10 per share. That will take place with the July payment and marks the third consecutive year the company has boosted its payout at least 20 percent.

First-quarter revenue and gross profit surged 9 percent over the year-earlier quarter, as margins remained steady at 26 percent. Cash from operations per share soared 436 percent, though funds from operations per share was up only about 1 percent to CAD0.69 per share, still good enough to cover the newly raised payout by nearly a 7-to-1 margin. The payout ratio was just 14.5 percent.

The Facilities Division saw a 4 percent increase in revenue and gross profit, respectively, over year-earlier levels. Commodity prices weakened performance at the lead acid battery facility Ville Ste-Catherine (VSC), offset by improved crude and base oil pricing in the Western Facilities. Meanwhile, the Onsite Division was the key to growth, with revenue rising 20 percent and gross profit up an even greater 31 percent, with margins rising to 26 percent from 24 percent.

CEO Al Cadotte confirmed the company is “on track to sustain growth at 15 percent per year and double the business by 2015 from a base of 2010.” The plan this year is to focus on capital investments that improve onsite efficiency.

The company also managed a 164 percent increase in “growth” capital expenditures, which will flow through to future earnings. And cash flow during the quarter was high enough to cover the combination of growth capital expenditures, maintenance capital expenditures and dividends.

Management anticipates continued solid growth at the Onsite division the rest of the year, keyed by the success of Newalta’s recent initiatives into the heavy oil industry. It also expects improved conditions at its Eastern processing facilities. VSC will be hurt by lower lead prices, though throughput will remain steady.

That will provide more than enough support for the dividend and the stock price. My buy target for longtime holding Newalta remains USD15.

Northern Property REIT (TSX: NPR-U, OTC: NPRUF) posted an 11.3 percent boost in its first-quarter funds from operations per stapled share. That made for a payout ratio of just 65.8 percent for the quarter, down from 71.5 percent a year ago. The first quarter is often seasonally weak due to the REIT’s absorption of heating costs for apartment tenants.

Northern cuts its vacancy loss rate to just 3.6 percent (occupancy rate 96.4 percent) from 4.9 percent a year ago. That was on the back of 16.6 percent higher revenue and 14.3 percent better net operating income. Same-door revenue growth–which excludes acquisitions–surged 5.6 percent.

Developing new buildings has increasingly become key to Northern’s long-run growth. That’s a function of being a leading player in so many markets it dominates. The company is about to open 87 new apartments in Iqaluit this summer and is on track for another 36 in the fall of 2012. It’s developing a 25,000 square foot downtown office building in the Nunavut capital city, 58 new residential units in Yellowknife, 142 apartment units in Lloydminster, 189 units in Regina and a 31 unit building in Labrador City.

The sale of the REIT’s seniors facilities is a plus, providing funds and simplifying corporate structure. Unfortunately, Northern’s problems with Canada’s Finance Ministry over its current staple share structure continue. Management’s current assumption is it will have to sell assets of NorSerCo back to the REIT and eliminate the staple share structure, but it continues to assure investors that the low payout ratio will ensure the current distribution level.

That’s certainly good news. But it’s not quite good enough to merit a raise in my buy target above USD30. That’s going to take either a dip in the unit price or a raise in the distribution.

During Northern’s first-quarter conference call company President Jim Britton stated that the REIT’s “traditionally low payout ratio is going to disappear for a while.” The reason is temporary dilution as the company reinvests funds from the sold seniors facilities and other assets that don’t qualify for REIT status under Canadian law.

Consequently, future distribution increases are likely to be delayed. I’m a big fan of this REIT, which has proven time and again its ability resist recessionary pressures and continue to grow. But until we get a dividend increase, it’s not worth paying more than USD30 for. Be patient.

Peyto Exploration & Development Corp (TSX: PEY-U, OTC: PEYUF) like all producers of natural gas took a big hit from falling gas prices in the first quarter. Realized selling prices were 28 percent below 2011 levels, slipping to CAD3.53 per thousand cubic foot. The company’s unhedged output fared far worse, selling for just CAD2.67 per thousand cubic foot.

Nonetheless, the company actually posted 4 percent higher funds from operations from the year earlier. As a result, its payout ratio came in at just 32.1 percent, identical to the year earlier tally when gas sold for nearly CAD5.

Peyto’s superior performance was due to three major reasons. First, it was boosted production per share by 25 percent to a record 31,531 barrels of oil equivalent per day (boe/d). That was mainly keyed by growth in dry natural gas, as output of oil and natural gas liquids rose just 9 percent. Peyto’s overall production mix is now 90 percent dry gas.

Second, improved scale and relentless efficiencies cut the company’s operating costs per unit by 15 percent. The combination of operating expenses, transportation cost, general and administrative expenses and interest expense together is now just 72 cents Canadian per thousand cubic foot. That adds up to a 38.9 percent profit margin at CAD1 per thousand cubic foot gas, backing management’s long-held claim that Peyto can realize huge returns even at abysmal natural gas prices.

Finally, the company has access to some of the lowest-cost lands in North America, making it easy to replenish reserves from liquids rich formations. Management continues to take advantage of rivals’ weakness to accumulate new areas for development, netting 22 sections of Deep Basin land during the quarter. Operating substantially all of its lands and wells gives the company extraordinary control over what’s produced, down to the yields on individual natural gas liquids (NGL). An enhanced NGLs recovery project is set to begin construction in July with startup for late September, with a second to come on stream in early 2013.

Looking ahead, Peyto will continue to benefit from lower drilling costs, as rivals throttle back their efforts. Layering of hedging efforts for both NGLs and dry gas will keep selling prices above the average, as will the superior heat content of its reserves in general. The company’s production stream is on track to receive 165 percent of the dry gas spot price. And output looks set to rise again, as road bans from an early spring breakup are ended.

Throw in rock bottom finding and development costs and Peyto is capable of producing positive total margins as it replenishes reserves, even if gas prices slip back below CAD2 per gigajoule and stay there. And it continues to push to cut costs and improve efficiencies even more. Management’s current rate of capital spending is a robust CAD350 million, but it’s now accelerating that to CAD400 million with an option to go as high as CAD450 million.

Peyto’s share price has been extremely volatile the past six months, ranging from as high as USD25 and change to as low as USD14.58 in mid-April. That’s entirely because of perceived exposure to the gas price plunge, which these numbers prove is far overblown.

The potential upside for Peyto on a gas price recovery is immense. But this is a company built on drilling the most efficient and prolific wells in the business, not as a bet on energy prices. And it’s clear the company will weather whatever the market throws at it this year.

Given management’s stated preference for reinvesting incremental cash flow in the business rather than paying out more in dividends, I’m not expecting a dividend increase any time soon. But I am again rating Peyto a buy up to USD20 for those who don’t already own it.

Student Transportation Inc (TSX: STB, NSDQ: STB) reported a 24.6 percent boost in its fiscal 2012 third quarter. That fueled a 31.5 percent jump in cash flow, as cash flow margins improved to 22.5 percent of revenue from 21.3 percent a year ago. The company reports on a fiscal-year schedule that reflects the school term.

The company benefitted from six acquisitions that it closed and integrated in the first half of the fiscal year as well as nine bid contracts to operate school bus systems still owned by municipalities. That “should continue the positive momentum though the end of the fourth quarter of fiscal 2012,” according to Chairman and CEO Denis J. Gallagher.

The company continues to be able to issue low cost equity, raising CAD79.6 million in an offering in March. That’s held down borrowings under its credit agreement, even as it’s continued to win new business. Interest expense in the third quarter came in 4.9 percent lower than the level of the prior year.

The company has already announced six new bid contract wins for fiscal year 2012-2013, two in Ontario, two in Connecticut and two in New Hampshire, and has wrapped up eight more contracts in Texas and Washington State that the previous operator was forced to vacate.

The payout ratio for the quarter came in at just 41 percent of cash flow, providing sizeable funds for growth as well.

As some readers have rightly pointed out, Student Transportation’s basic business is not a utility. And it does depend on the company’s managers, mechanics, drivers and sales force to keep the positive revenue momentum going. Should I ever see the current uptrend broken, I would have to re-evaluate CE’s position in this stock.

From these numbers, however, all systems appear to be go.

Here are when Canadian Edge Portfolio Holdings have reported or will report numbers. Click on links to read analysis for companie that have released earnings. Note that several still have not set firm dates; we have provided an “estimate” for these companies based on their respective reporting histories.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–Apr. 26 Flash Alert
• Artis REIT (TSX: AX-U, OTC: ARESF)–May 11 Flash Alert
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–May 8 Flash Alert
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Jun. 1 (estimate)
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPUF)–May 8 Flash Alert
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–May 11 Flash Alert
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–May 11 Flash Alert
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–May 11 Flash Alert
• Dundee REIT (TSX: D-U, OTC: DRETF)–May 8 Flash Alert
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–May 15 (confirmed)
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–May 11 (confirmed)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–May 14 (confirmed)
• Just Energy Group Inc (TSX: JE, OTC: JUSTF)–May 17 (confirmed)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–May 11 Flash Alert
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–May 11 Flash Alert
• Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–May 8 Flash Alert
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–May Portfolio Update
• Shaw Communications Inc (TSX: SJR/B, NYSE: SJR)–Apr. 26 Flash Alert
• Student Transportation Inc (TSX: STB, OTC: STUXF)–May 11 Flash Alert
• TransForce Inc (TSX: TFI, OTC: TFIFF)–Apr. 26 Flash Alert

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–May High Yield of the Month
  
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–May 11 Flash Alert
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–May Portfolio Update
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–May 11 Flash Alert
• Colabor Group Inc (TSX: GCL, OTC: COLFF)–May Portfolio Update
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–May 11 Flash Alert
• Extendicare REIT (TSX: EXE-U, OTC: EXETF)–May 11 Flash Alert
• Newalta Corp (TSX: NAL, OTC: NWLTF)–May 11 Flash Alert
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–Jun. 14 (estimate)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–May 8 Flash Alert
• Pengrowth Energy Corp (TSX: PGF, NYSE: PGH)–May Portfolio Update
• PetroBakken Energy Ltd (TSX: PBN, OTC: PBKEF)–May Portfolio Update
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–May 11 Flash Alert
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–May Portfolio Update
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–May 8 Flash Alert