Despite a $135 million net loss in its third quarter, investors maintain confidence in TransCanada Corporation in the early days of a pipeline-friendly presidency.
According to the company’s most recent financial statements, common shares are down 130 per cent from last year’s third quarter, and are valued at 17 cents per share. This loss is largely due to a $1.1 billion hit the company took when it sold its northern hydro businesses in order to fund a new acquisition.
The acquisition of Columbia Pipeline Group marks a streamlining of TransCanada and “a return to what it knows,” according to Dr. Robert Sproule, a retired finance professor of the University of Waterloo.
By absorbing Columbia, TransCanada hopes to bring the company’s $7.7 billion of planned business growth. The move gives TransCanada a greater share of the pipeline market, which it only stands to benefit from moving forward in an increasingly pro-pipeline political climate.
TransCanada Corp. Stock Prices by MaggieParkhill on TradingView.com
The process of acquiring Columbia began just as Donald Trump, who has been publicly supportive of TransCanada’s Keystone XL pipeline project, clinched the Republican nomination. Since Trump became the clear GOP nominee front-runner, the company’s common stocks have been higher than ever, with the third quarter resulting in a 41 per cent increase in comparable earnings before losses related to the acquisition.
Another, even larger net loss of related to the Columbia acquisition is expected to be reported in the fourth quarter. “They’re trying to spread the pain, because they don’t want it in one reporting period,” Sproule says. But with President Trump’s executive order to pull an about turn on Keystone, TransCanada has been able to reapply for the controversial pipeline.
This policy change indicates a new path forward for pipelines, keeping investors content despite losing money on their shares. As Sproule explains, “Investors are always looking to the future.”
President and CEO Russ Girling is also looking to the future. In a press release, Girling says the infrastructure project will help meet growing energy demands and create tens of thousands of jobs in the U.S., a campaign promise of the president.
The path forward, however, is not without risks. With any acquisition, there is a chance that the returns will not cover the losses, according to Sproule. There’s also the potential for legal challenges to the Keystone XL project from environmental or indigenous lobby groups, as well as over land disputes from private citizens.
None of this seems to be affecting shareholder confidence, despite the stocks’ cooling off period this week after the executive order high. “TransCanada has been around for a long time, and the nature of the pipeline business is pretty solid,” says Sproule.
Trump’s executive order not only gives investors confidence, but also halts a $15 billion lawsuit that TransCanada filed against the U.S. government for rejecting Keystone XL over a year ago after the Obama administration axed the project.
U.S. District Judge Kenneth Hoyt ordered that the lawsuit be abated until May 1 to allow for TransCanada’s reapplication to be processed and for a final decision to be made by the Trump administration. The reapplication was submitted on Jan. 27, and the U.S. government has 60 days to respond. According to Judge Hoyt, a decision in to go ahead with the pipeline in March would render the lawsuit moot.
(To view the annotated notes in this financial statement, please click on the “Notes” tab at the top.)