Hydro One Limited

Hydro One Limited (TSX: H), through its subsidiaries, operates as an electricity transmission and distribution company in Ontario. It operates through three segments: Transmission Business, Distribution Business, and Other.

Why Should Investor’s Book Profit?

Industry below Gross and EBIDTA margin: The company’s gross margin for the Q3FY21 was 37.2%, well below the industry median of 69.3% and EBITDA margin in the same period stood at 35.9% whereas industry median stood at 38.3%, implies a lack of competitive strength against the industry peers.

Higher Debt Contribution: The company’s Debt/Equity ratio as of September 30, 2021 stood at 1.34x whereas industry median stood at 1.14x, implies that the investors in “H” are exposed to a relatively greater balance sheet risk.

Poor risk protection metrices: Despite a relatively higher debt contribution in the balance sheet, the company’s debt protection metrices are also poor compared to  its peers, with Net Debt to EBITDA ratio as of September 30, 2021, stood at 20.48x whereas industry median Net Debt to EBITDA ratio stood at 15.6x.

Stock recommendation

Given the uncertainties hovering over the broader market, companies with lack of competitive advantage can witness greater volatility. Further, investors in the Hydro One are exposed to a greater balance sheet risk and debt protection metrices of the company is also poor compared to its peers.

Hence, we recommend a “Sell” rating on the “H” stock at the closing price of CAD 32.27 (as on December 17, 2021).

1-Year price chart (as on December 17, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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