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Fortis Inc. Q2-2020 Earnings, Price Target Update

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Fortis Inc. (FTS) is a North American electric and gas utility business, operating in five Canadian provinces, nine U.S. states and three Caribbean countries. Total assets are $56.2B as at Jun-30-2020. This has increased to $53.4B as of Dec-31-2019 from $29B at Dec-31-2015 mainly from the acquisition of ITC Holdings Corp in Nov-2016 and annual capital spending of about $3.8B. Approximately 95% of revenues are from rate regulated natural gas and electric utilities serving 2M electric customers and 1.3M natural gas connections. Approximately 65% of forecast adjusted net income is in US dollars and 30% in Canadian with the balance from Caribbean operations. The $56.2B in assets includes the $11.8B(US) acquisition in Nov-2016 of ITC, the largest independent owner of transmission lines in the US. ITC owns and operates high-voltage transmission facilities in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma. The largest business segments are ITC, UNS and Fortis (Alberta) contributing 30%, 25% and 10% respectively. Dividends are forecast to increase by 6% annually consistent with previous forecasts. Forecast capital expenditures for the 2020-2024 time period are $18B.

Business Segments

Fortis is principally an energy delivery company, with 93% of assets related to transmission and distribution. Fortis' regulated utility businesses are: ITC (electric transmission - Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma); UNS Energy (integrated electric and natural gas distribution - Arizona); Central Hudson (electric transmission and distribution, and natural gas distribution - New York); FortisBC Energy (natural gas transmission and distribution - British Columbia); FortisAlberta (electric distribution - Alberta); FortisBC Electric (integrated electric - British Columbia); Newfoundland Power (integrated electric - Newfoundland and Labrador); Maritime Electric (integrated electric - Prince Edward Island); FortisOntario (integrated electric - Ontario); Caribbean Utilities (integrated electric - Grand Cayman); and FortisTCI (integrated electric - Turks and Caicos Islands). Fortis also holds investments in the Wataynikaneyap Partnership (electric transmission - Ontario) and Belize Electricity (integrated electric - Belize). Non-regulated energy infrastructure is comprised of Aitken Creek (natural gas storage facility - British Columbia), BECOL (three hydroelectric generation facilities - Belize) and the Waneta Expansion up to its disposition in Apr-2019. Fortis has a unique operating model with a small head office in St. John's, Newfoundland and business units that operate on a substantially autonomous basis. Each utility has its own management team and most have a board of directors with a majority of independent members, which provides effective oversight within the broad parameters of Fortis policies and best practices.

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