Political turmoil continues to impact Hydro One Limited (TSX:H) but investors should take another look at the utility company, says Andrew Pyle of Scotia Wealth Management, who thinks it’ll likely weather the storm.
Last week, the Ontario government announced that an interim CEO and new board of directors had been named for the electrical transmission and distribution company, a month after its previous CEO and board had resigned, reportedly forced out by the Ontario government. Privatized in 2015, the province remains Hydro One’s largest shareholder, owning 47 per cent.
Premier Doug Ford said his government had been elected on a promise to “clean up” the utility, which Ford had railed against during his campaign, both for its executive pay packages as well as its hydro rates that Ford said were hurting Ontarians.
“Hydro One is turning over a new page, with an opportunity to re-earn the confidence of Ontario and ensure Ontario’s electricity system is working for the people, as our government continues to work to bring your hydro bills down,” said Ford last week in a press release.
With its share price now down almost 13 per cent for the year, Hydro One has been hurt by the ongoing uncertainty, says Pyle, senior wealth advisor and portfolio manager of the Pyle Group at Scotia Wealth Management, who spoke to BNN Bloomberg.
“I think the market has obviously dealt with the confusion and uncertainty, the turmoil that’s been created from the political side with Hydro One,” says Pyle. “I would suggest now that the markets are looking at the fact that they have, at least, a new interim CEO, and we have a new board now this week. The market has appeared to have given its thumbs up to that and I think what the market was looking for was something that was stable.”
Along with bringing in interim CEO Paul Dobson and a new 10-member board, the Ontario government has introduced the Hydro One Accountability Act, which requires the utility to come up with a new executive compensation framework within six months and calls for further transparency regarding future changes to that framework.
Pyle thinks Hydro One is likely to weather the executive shake-up. “At the end of the day, this is Hydro One — it’s not a teeny little company that we’ve got to be afraid of but I think we have seen the valuations crushed on this company,” he said.
“We actually have Hydro One in [our] portfolio and we’ve actually been adding to that position on that view that we probably have a much more stable environment right now,” Pyle says. “A lot of investors would want to shy away from this stock simply because if [the Ontario government] can do that, what else can happen to this utility? But we actually like this utility and we like the yield on it.”
Last week, Hydro One reported its second quarter financials for 2018, which included a profit of $200 million, a year over year increase of $3 million, and represented $0.33 per diluted share versus last year’s second quarter profit of $0.20 per diluted share.