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Fortis Inc. (FTS)
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Emera Incorporated (EMA)
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Capital Power Corporation (CPX)
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Brookfield Infrastructure Partners L.P. (BIP.UN)
Q: Thank you for your ranking of Canadian utilities last week-our investment club had a lengthy discussion yesterday afternoon over the rankings. I found it difficult to defend BIP.UN as first pick with 6:1 debt, meagre/erratic EPS, and growing share dilution vs CPX having similar posted growth rates, 1.5:1 debt, decent EPS and slower share dilution. Any assistance and clarification on this greatly appreciated. Thank you
5i Research Answer:
The main issue is this is not an apples/apples comparison. BIP.UN has significant assets other than pure utilities such as CPX. It has transport assets, communications, timberlands and other infrastructure assets. In a economic growth scenario, this gives it more upside potential and why we like it. Its LP structure makes EPS erratic due to accounting, but a focus on cash flow shows a better picture (cash flow was $1.4B in 2017, and was $4.1B last year). Debt is higher, but as noted its asset diversification is different. It is also 4X the size of CPX. We would agree CPX is probably safer due to its lower debt and focus.