- Has the most favourable debt situation (acknowledging that TRP is a bit different being utility-like) ?
- Has the best total return potential in the long term?
- Has the best moat if it exists?
- Can withstand the present rate environment better - assuming rates don’t drop any time soon.
Thanks.
The two names are different in terms of industry and fundamentals (NTR is more cyclical, while TRP is more stable). Consequently, it may not be an apple-to-apple comparison here. Having said that, here are the financials of both names:
Debt situation, NTR has a net debt/EBITDA of 1.6x, while TRP’s net debt/EBITDA is around 6.4x
In terms of total return, both could do well from here, but we think NTR has a higher probability of doing better (stronger balance sheet, more capital returns).
In terms of moat, we think TRP’s infrastructure assets are more attractive, as these are unique assets that are hard to replicate easily. It is also a highly regulated market.
Assuming rates stay flat, we think NTR likely has more potential from current levels. It has fallen more, and in a recovery it has very strong earnings leverage on contract prices. Simply because of their different businesses, TRP can likely survive the current environment better. Cash flow is very stable. NTR's business, in a global recession, would be impacted fairly quickly by a reduction in contract prices. China in particular is a bit of a concern right now.