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Algonquin Power stock plunges after utility cites inflation, interest rate risk

Algonquin Power blamed rising interest rates and inflation as it cut its 2022 guidance on Friday. (GETTY)
Algonquin Power blamed rising interest rates and inflation as it cut its 2022 guidance on Friday. (GETTY)

Shares of Algonquin Power & Utilities (AQN.TO)(AQN) plunged nearly 20 per cent on Friday after the renewable power and utility firm cut its guidance, citing risks from higher interest rates and inflation.

The Oakville, Ont.-based company, which keeps its books in U.S. dollars, reported third-quarter financial results before the opening bell. Algonquin's loss for the three months ending Sept. 30 was US$195.2 million, compared with a loss of US$27.9 million in the same quarter last year. Revenue climbed about 26 per cent to US$666.7 million on an annualized basis.

Toronto-listed shares fell 18 per cent to $12.54 as at 1:11 p.m. ET on Friday.

Algonquin says it earned 11 cents per share in its latest quarter on an adjusted basis, compared with an adjusted profit of 15 cents per share in the third quarter of 2021.

Speaking on a call with analysts, CEO Arun Banskota described the results as "challenged." Chief financial officer Darren Myers says high borrowing costs and tough economic conditions are expected to remain a headwind for Algonquin into next year.

"Looking ahead into 2023, broadly speaking, we expect pressure from increasing interest rates and broader economic conditions to impact our earnings," Myers said. "In light of the changing environment, we are reviewing our plans and targets for 2023 and beyond."

Algonquin lowered its expected earnings per share for fiscal 2022 on Friday from between 72 cents and 77 cents, to a range of 66 cents to 69 cents. On top of higher interest rates and inflation, the company also blames "delays in the construction and completion of certain... renewable energy projects, and anticipated delays in connection with certain rate decisions."

The company operates US$17 billion worth of assets, mainly located in North America, spanning hydroelectric power, wind, solar, and utility distribution. Banskota says the capital-intensive nature of the business leaves it acutely exposed to higher interest rates and capital market volatility.

Algonquin hopes to close a US$2.6 billion deal to acquire the Kentucky Power Company and AEP Kentucky Transmission Company in January. At the same time, it entered into an agreement last month to sell its stake in a portfolio of wind assets in Canada and the U.S. to a U.K. investment firm.

Algonquin says it will host an investor and analyst day in early 2023.

With files from The Canadian Press.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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