Morningstar | Management Meeting: Fortis' Success in Finding Development Opportunities Is Impressive
We are reaffirming our CAD 48 per share fair value estimate, narrow moat, and stable moat trend for Fortis after meeting with management at the Edison Electric Institute Financial Conference in San Francisco.Fortis' executives are focused on internal growth opportunities. We think this is the right approach for shareholders and applaud management for continuing to identify and execute on numerous capital growth opportunities. Management remains dedicated to transmission investments, despite a recent FERC ruling challenging ITC's independence from Fortis and lowering its independence rate adder by 25 basis points. Returns are still higher than regulated investments at its other subsidiaries.
ITC continues its work on the ITC Lake Erie Connector and Grid modernization project. Given the regulatory uncertainty around the project, we don't include it in our fair value estimate, but it would likely increase our fair value estimate if management continues its success in executing development opportunities.
Fortis' $17.3 billion, five-year investment plan will drive 6% to 7% rate base growth and 6% dividend growth, both of which we view as attainable. Fortis has investment opportunities across its regulated portfolio, highlighted by gas infrastructure investments in Canada, Midwest transmission projects, and renewable energy development and integration at UNS.
To fund $1 billion to $2 billion of the investment plan, Fortis will look to sell $1 billion to $2 billion of assets to offset any additional equity needs. All of the proceeds will come from Fortis' unregulated assets. We like that management will use the proceeds from the no-moat assets and reinvest in moaty regulated subsidiaries.
Fortis is principally an international electric and gas utility holding company. Co. also holds investments in non-regulated generation assets. Co.'s business segments are: Regulated Electric & Gas Utilities - United States; Regulated Gas Utility - Canadian; Regulated Electric Utilities - Canadian; Regulated Electric Utilities - Caribbean; Non-Regulated - Fortis Generation; Non-regulated - Non-Utility; and Corporate and Other. Its regulated utilities served more than 3.0 million customers across Canada and in New York State and the Caribbean. Co. also holds investments in non-regulated generation assets in Canada and Belize, through Fortis Generation.
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