Briefing highlights
* Politics and Hydro One
* Bombardier sells Downsview
* Markets at a glance
* Toronto home prices slip
* BCE profit rises on wireless
* Canadian Natural profit rises
* Crescent Point posts loss
* Trade gap at record high
Roughly since [1906], Ontario has been embroiled in politics with the electricity sector
— Andrew Kuske, Credit Suisse
Mayo Schmidt has been making a lot of money off Hydro One as the Ontario government has been losing it.
This is not to wade into the controversy over Mr. Schmidt’s $6.2-million 2017 pay packet as chief executive officer, but rather to note how the “noise” surrounding Hydro One has helped buffet the utility’s stock price.
And how it has always been thus.
And how it could affect shareholders, including the province, which owns 47 per cent, going forward.
“Unfortunately, Ontario has a long history of painful politics associated with the electricity sector that, arguably, date back to the turn of century … with the Hydro-Electric Power Commission of Ontario’s formation in 1906,” said Credit Suisse stock analyst Andrew Kuske.
“Roughly since that date, Ontario has been embroiled in politics with the electricity sector,” he added in a research note on the utility.
Hydro One chief executive officer Mayo SchmidtChristopher Katsarov/The Globe and Mail
To recap, as The Globe and Mail’s Andrew Willis and Justin Giovannetti report, Ontario’s Liberal government doesn’t like how much Mr. Schmidt earned. So much so that it plans to vote against his compensation when Hydro One holds its annual meeting in mid-May.
That followed a declaration from Ontario’s Conservative leader, Doug Ford, that he’d fire the entire board and replace Mr. Schmidt so he could bring down electricity rates.
Hydro One chair David Denison has since said the board will talk to other shareholders and get independent advice.
Because, you know, “this will further assist us in seeking the direct input of shareholders on matters related to executive compensation, inclusive of change of control and severance provisions.”
The phrase change of control is interesting in this case as Ontario heads toward a June 7 election, with Mr. Ford challenging Premier Kathleen Wynne’s Liberals.
Going forward, being a shareholder could be like sticking your finger in a light socket.
“Prior to Ontario’s June 7 election, we anticipate a lot of political posturing around power rates, Hydro One issues along with other factors that will occupy front-page news and dialogues at Queen’s Park,” said Credit Suisse’s Mr. Kuske.
“From our perspective, the key Hydro One stories are the Avista closing path and rolling up Ontario’s electrical utilities,” he added, referring to Hydro One’s megamerger with Avista Corp. in the United States, which is going through a regulatory process.
“Despite the governance agreement between the province of Ontario and [Hydro One], political ‘noise’ looks to surround [Hydro One] through the political season – and potentially beyond.”
Just this week, UBS analysts slapped a “sell” recommendation on Hydro One stock.
Laurentian Bank Securities, in turn, has a “buy” rating, with a one-year price target of $24.
Laurentian analyst Mona Nazir expects Hydro One to report earnings per share of 32 cents when it reports first-quarter results later this month. That would be up four pennies from a year earlier, but two cents below the consensus of analysts.
“Management is anticipating mid-single-digit bottom-line growth, and we expected dividend growth to closely follow such,” Ms. Nazir said, citing the various issues, including compensation, which she deemed “fair.”
“This is critical as the messaging for the Hydro story has not changed following its [initial public offering] three years ago, despite macro/company-specific challenges.”
Read more
- Andrew Willis, Justin Giovannetti: Hydro One to revisit executive pay after Ontario Liberals vow to oppose compensation plan
- Gordon Pape: Hydro One: Buy, sell or hold? This is what I would do
- Justin Giovannetti: Ford promises 12-per-cent cut to Ontario hydro rates but doesn’t say how Tories would replace lost revenue
- David Denison: Facts versus politics: The truth about Hydro One and executive compensation
- Janet McFarland, Justin Giovannetti: Hydro One board increases price tag for Ontario government intervention by raising CEO severance provisions
Bombardier sells Downsview
Bombardier Inc. is selling its Toronto area Downsview property to a pension fund, linking the sales of the 370-acre site to its turnaround plan.
Bombardier announced the sale to the Public Sector Pension Investment Board as it also unveiled a deal to lease 38 acres at Toronto’s Pearson International Airport, where it plans a “new centre of excellence” and assembly operation for its global business jets.
The Downsview sale is worth about $635-million, gross, the train and plane maker said.
“As part of Bombardier’s five-year turnaround plan, we have been reviewing our facilities worldwide to ensure we have the most efficient and cost effective operations necessary to support our growth objectives,” said chief executive officer Alain Bellemare.
“Today, we only use about 10 per cent of a 370-acre site at Downsview and bear the entire cost of operating a 7,000-foot runway,” he added in a statement.
Bombardier also reported quarterly profit of $44-million, or a penny a share, diluted, compared to a restated $6-million, or zero a share, from a year earlier.
Revenue climbed 12 per cent to $4-million from $3.6-million.
Bombardier is just one of several companies reporting results today.
Read more
- Bombardier selling Downsview site to pension fund, profit rises
- BCE profit rises on wireless-subscriber growth
- Canadian Natural profit more than doubles on higher output
- Crescent Point reports loss on discounted crude
Markets at a glance
Read more
Market stabilizing
Toronto’s housing market continued to show signs of stabilizing in April, but sale prices remain significantly below the record levels hit last spring, The Globe and Mail’s Janet McFarland reports.
New sales data from the Toronto Real Estate Board shows the average home sold for $804,584 in the Greater Toronto Area in April, a 12-per-cent drop from April last year. April’s average sales price was 0.2 per cent below the average sales price in March this year, based on preliminary seasonally adjusted numbers.
The numbers suggest that recent policy changes – including tougher new mortgage qualification rules that took effect Jan. 1 – have not sent the housing market into steep decline as some analysts had feared, and the impact may already be moderating.
“The market still looks very soggy,” said Bank of Montreal senior economist Robert Kavcic, citing the year-over-year sales drop of 32.1 per cent and “not much momentum” from a month earlier.
“The overall market balance (sales/new listings) looks roughly stable from the prior month [seasonally adjusted], favouring buyers, and is still not tightening from the lows yet.”
Read more
- Janet McFarland: Toronto home prices tumble but market shows signs of stability
- Brent Jang: Vancouver house sales hit 17-year low for April as government measures spook buyers
- Plan on growing marijuana at home? There goes the neighbourhood, realtors warn
- Why so many Canadians face so much mortgage misery
Trade gap at record high
Imports to Canada surged to a record high in March, eclipsing the gains in exports to widen the country’s trade gap to $4.1-billion, also a record.
Imports rose 6 per cent, and exports 3.7 per cent, Statistics Canada said today.
In volume terms, imports gained 5.3 per cent, and exports 3 per cent.
“Despite the widening, the trade numbers shouldn’t be written off as bad news,” said Royce Mendes of CIBC World Markets, noting that two-way trade rose markedly.
“Imports of motor vehicles and consumer goods were largely responsible for the rise in inbound shipments, which should reflect strong domestic demand,” he added.
“The export story was a little less impressive given that it was partially attributable to the volatile ‘aircraft and other transportation’ sector and simply a rebound in agricultural shipments from fewer rail bottlenecks. The news on a wider trade deficit is weighing on the Canadian dollar, but this report actually seems like good news from a GDP perspective given what it implies for domestic demand.”