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Fortis Inc. (FTS)
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Brookfield Renewable Corporation Class A Exchangeable Subordinate Voting Shares (BEPC)
Q: What is your assessment of today's financial engineering announcement regarding BEPC? Can you give me a good reason to stick with BEPC versus switching to FTS? FTS is a blue chip utility with a normal corporate structure. My gut is telling me to stay well clear of the Brookfield group of companies, fearing that their corporate shuffling and financial wizardry will end badly one day.
5i Research Answer:
No doubt Brookfield's accounting can be complex, but there is reason behind (taxes, ease of capital raises). Focusing on cash flow rather than earnings can help. The group has been an absolute monster in creating shareholder value, and we have heard the complexity arguments now for more than 20 years. For the BEPC changes, they are being driven by changes to Canadian tax law. We will need to await the filing of the circular for full comments, but the changes will be tax-free to Canadians and should result in no material changes whatsoever to holders. We like FTS also, and would be fine owning either, but we would not sell BEPC just because of the proposed changes.