EMERA INC. $42(Toronto symbol EMA; Income Portfolio, Utilities sector; Shares outstanding: 144.8 million; Market cap: $6.1 billion; Price-to-sales ratio: 2.1; Dividend yield: 3.8%; TSINetwork Rating: Average; www.emera.com) owns 100% of Nova Scotia Power, that province’s main electricity supplier. This business supplies 45% of Emera’s revenue and a third of its earnings.
In the past few years, the company has steadily expanded into other regions, mainly through acquisitions. It now owns or invests in several power plants and natural gas pipelines in the U.S. and the Caribbean. Thanks to these new operations, Emera’s revenue rose 85.0%, from $1.6 billion in 2010 to $3.0 billion in 2014.
Erratic earnings history
Earnings improved from $1.67 a share (or a total of $190.7 million) in 2010 to $1.99 a share (or $241.1 million) in 2011. They then fell to $1.77 a share (or $220.8 million) in 2012 and $1.64 a share (or $217.5 million) in 2013. However, profits shot up to $2.84 a share (or $406.7 million) in 2014.
Gains and losses from Emera’s energy-trading business tend to distort its earnings. Without these unusual items, overall earnings rose 23.1%, to $319.2 million in 2014 from $259.4 million in 2013. Per-share profits gained 13.8%, to $2.23 from $1.96, on more shares outstanding.
In addition to acquisitions, Emera is investing $3.5 billion in new projects between 2015 and 2017. The biggest is the Maritime Link, which will transmit electricity from the island of Newfoundland to Nova Scotia through an undersea cable. The power will come from a new hydroelectric project on Labrador’s Churchill River. Emera will spend $1.6 billion on Maritime Link, which should begin operating in 2017.
Separately, Emera will pay $400 million for a 34.9% stake in a new utility that will transmit power from Churchill River to Newfoundland.
Renewable power cuts risk
Emera is also building wind farms and a facility that generates power from tidal forces in the Bay of Fundy. These investments will help it comply with Nova Scotia’s plan to get 50% of its power from renewable sources by 2020, up from 22% in 2014.
Emera’s strong cash flow will pay for half of these new projects. The rest will come from new debt, selling less important assets and issuing up to $250 million of new common shares.
As of March 31, 2015, the company’s long-term debt was $3.8 billion, or a high 62% of its market cap. But high debt levels are common for regulated utilities, as they generate steady cash flow to pay the interest.
Higher dividends ahead
The company’s new operations will also help fund its plan to raise its dividend by 6% a year through 2019. The current rate of $1.60 yields 3.8%. The stock also trades at a reasonable 18.2 times the $2.31 a share Emera should earn in 2015.
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