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Canadian Utilities Focus On 'Quiet Grind' as Valuations Hit Premium Levels, RBC Says

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Canadian regulated utilities continue to "quietly grind along," delivering steady execution on strategic priorities even as broader markets remain dominated by macro volatility and AI-driven headlines, RBC Capital Markets strategists said in a Wednesday note.

RBC analysts said that the sector's Q1 results, reaffirmed multi-year capex plans and continued progress on growth initiatives underscore what the bank describes as a consistent focus on controllable factors, rate cases, regulatory outcomes and customer demand evolution, rather than headline-driven sentiment.

Affordability remains a key constraint across jurisdictions, with RBC flagging outstanding and upcoming rate cases as a continuing source of regulatory risk. However, recent developments across several utilities highlight incremental de-risking and modest earnings uplift opportunities.

From a valuation perspective, RBC said Canadian regulated utilities are trading at about 36% premium to the S&P/TSX Composite on a price-to-earnings basis and about 117 basis points above Government of Canada 10-year bond yields.

Though elevated, the bank said these levels reflect improved earnings visibility and a longer perceived runway for stable growth, as well as the sector's defensive characteristics.

RBC said stock selection remains critical in the current environment, favoring names with identifiable "bankable themes."

The bank highlighted Brookfield Infrastructure for its capital recycling strategy, AltaGas for exposure to the Western Canadian Sedimentary Basin and its liquefied petroleum gas export platform, and Emera for its ongoing de-risking profile and exposure to Florida utilities.

RBC also pointed to continued regulatory and operational progress across the sector. The brokerage firm flagged recent rate-case achievements at Emera's Nova Scotia Power unit, while noting that approval for a proposed CA$700 million ($500 million) securitization of thermal assets scheduled for retirement by 2030 remains pending.

Several subsidiaries of Algonquin Power & Utilities in the US, including Empire Electric Missouri, CalPeco Electric, and New England Natural Gas, have secured revenue increases totaling about $204 million, RBC said.

Meanwhile, Hydro One continues to expand its electricity transmission pipeline, with its backlog now comprising 15 projects, while data center-driven demand is emerging as a new growth driver for both Fortis and Emera's Tampa Electric operations.

RBC also highlighted a series of near-term regulatory catalysts, including a decision from New Mexico's regulator on Emera's proposed sale of New Mexico Gas, which has received examiner-level approval with conditions and could close mid-year.

Canada's Alberta Utilities Commission is also expected to rule on Canadian Utilities' Yellowhead Mainline application in the coming months, potentially enabling construction to begin shortly thereafter.

Later in the year, investors will also watch for Fortis' rate application decision in Arizona and Hydro One's upcoming joint rate filing.

Algonquin is also expected to provide an update in Q2 on potential US tax implications arising from its proposed legal redomiciliation structure.

Going forward, RBC said that while the sector's longer growth runway supports valuations, macroeconomic pressures, including inflation linked to energy costs, and already-stretched multiples may limit further re-rating potential.

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