Post by
Dibah420 on Mar 15, 2022 5:30pm
BMO
March 14, 2022 | 18:22 ET~ Fortis FTS-TSX Rating Market Perform Price: Mar-14 $60.22 Target ↑ $60.00 Total Rtn 3%
Highlights From Management Meetings; Target to $60 From $57 Bottom Line: We recently hosted investor meetings with Fortis' Jocelyn Perry (Executive Vice President and CFO) and FortisBC's Roger Dall'Antonia (President and CEO), the net of which reaffirmed FTS's defensive characteristics (~99% regulated), attractive rate base CAGR, solid balance sheet, and positive ESG profile. With recent positive sentiment on safe-haven names like FTS, we have upped our target to $60 from $57 (21x forward PE vs. 20x previously) and maintain our Market Perform rating mainly on relative potential total return.
Key Points Capital program reaffirmed, with upside in the wings. The ~$20B 2022-2026 capex program was solidly reaffirmed supporting a 2026E rate base of $41.6B (~6% rate base CAGR), and driving annual dividend growth of 6% through 2025. Only ~15% of the plan is for major capital projects (i.e., greater than $200M) reducing execution risk and $3.8B is dedicated to cleaner energy investments. Momentum is also building on potential positive revisions to the plan, including the fully permitted ~$1.7B Lake Erie Connector project (we estimate ~$0.05 positive EPS impact) and MISO Long-Range Transmission Planning (ITC currently has ROFR in Michigan). Visibility on the first basket of MISO transmission projects is expected by June.
Still focused on reducing GHG emissions. In its first TCFD and Climate Assessment report published last week, FTS presented its four climate-related scenario analyses and highlighted its GHG reduction targets and initiatives. It has achieved a ~20% reduction in emissions since 2019 and on track to achieving its 75% Scope 1 emissions reduction target by 2035. Reaching this target largely depends on TEP (the most significant emitter of Scope 1 emissions within FTS), eliminating coal from its generation mix by retiring ~1GW by 2032. TEP also plans on having ~2.4GW of new renewables and ~1.4GW of battery storage by 2035.
During the meetings, management also discussed FortisBC’s Tilbury LNG projects and 2030 target of sourcing 15% of gas supply from RNG/hydrogen. No need for external equity to fund the plan. Management reiterated that the DRIP fully satisfies its equity needs for the five-year capital plan and that it remains focused on organic growth over large-scale M&A.
Other funding sources for its growth targets include internally generated cash flows and new utility debt (interest expense largely a pass-through), with a sharp focus on maintaining an investment-grade balance sheet.