Hydro One Ltd

Hydro One Ltd (TSX: H) is an electricity company based out of Canada. The Company is engaged in the business of offering services related to electricity distribution and electricity transmission. The Group has divided its operations into three reportable segments being Distribution, Transmission and other.

Financial Highlights – Q2 and H1 of Financial Year 2020 (30 June 2020)

(Source: Quarterly Report, Company Website) 

In the first half of the financial year 2020, driven by higher revenue from transmission and distribution businesses for the period, the revenue increased to CAD 3,520 million (H1 FY2019: CAD 3,172 million). The revenue in Q2 FY2020 increased to CAD 1,670 million.  The net income attributable to shareholders increased significantly to CAD 1,328 million in the first half of the financial year 2020 (H1 FY2019: CAD 326 million), and the net income attributable to shareholders in Q2 stood at CAD 1,103 million (Q2 FY2019: CAD 155 million). Due to higher adjusting items for the period, the adjusted net income attributable to shareholders declined to CAD 461 million in H1 FY2020 (H1 FY2019: CAD 466 million). The basic and diluted earnings per share stood at $1.84 in Q2 FY2020 (Q2 FY2019: $0.26). The basic and diluted earnings per share stood at $2.22 and $2.21, respectively, in the first half of the financial year 2020. The net cash flow from operating activities surged significantly to CAD 923 million in H1 FY2020 (H1 FY2019: CAD 415 million). The cash balance stood at CAD 37 million as on 30 June 2020 versus CAD 30 million as on 31^st December 2019. The total assets stood at CAD 28,083 million as on 30 June 2020 versus CAD 27,061 million as on 31^st December 2019.

Share Price Performance

H 1 year daily technical chart. Source: Refinitiv (Thomson Reuters)

Hydro One Ltd shares closed at CAD 27.96 at the time of writing after the market close on 21 August 2020. Stock's 52 weeks High is CAD 29.53 and Low is CAD 20.25.

Key Risks

Any change in regulations and government policies could affect the overall business of the Company. The market conditions in which the Company operates is full of challenges and might impact the operation performance and reduce financial performance as well. Liquidity and interest rate risks could affect the operations of the Company. Risks related to environment and climate change could hamper the operations of the Group. 

Conclusion

The Company has shown an increase in financial performance in the first half and the second quarter of the financial year 2020. Both the top-line and the bottom-line performance have increased, with improved profitability for the period. The performance from transmission and distribution revenue has increased for the period. The Company has extended its Winter Relief program and temporarily suspended its late fee payment to support customers during difficult times. The Group announced a Pandemic Relief fund to support customer affected by covid-19 and offered financial assistance with payment flexibility. The Company returned around $5 million in security deposits, collected from new customers, to more than 4,000 commercial businesses. The liquidity position of the company has slightly improved, and the balance sheet remained well-positioned.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 27.96 (as on 21 August 2020).

Disclaimer

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