Canadian Utilities Ltd. $48 – Toronto symbol CU

CANADIAN UTILITIES LTD. (Toronto symbols CU $48 (Class A) and CU.X $47 (Class B); Income Portfolio, Utilities sector; Shares outstanding: 125.4 million; Market cap: $6.0 billion; SI Rating: Above average) is a leading distributor of natural gas and electricity in Alberta. It has over 1 million customers in nearly 300 communities. The company also operates independent power plants in other parts of Canada, the UK and Australia. ATCO Ltd. controls about 74% of the company’s class B voting common shares. Among Canadian Utilities’ overseas investments is a 25.5% stake in the Barking power plant in London, UK. Due to the recent failure of a steam turbine, the plant will operate at 60% of capacity for the next 45 days. The outage will cut Canadian Utilities’ earnings in the fourth quarter of 2007 by $5 million to $10 million. To put that in context, the company earned $72.2 million in the three months ended September 30, 2007, up 8.1% from $66.8 million a year earlier. Earnings per share rose 9.4%, to $0.58 from $0.53. Revenue fell 11.6%, to $489.9 million from $553.9 million, partly due to lower gas prices. Cash flow per share rose 1.7%, to $1.19 from $1.17. Strong economic growth in Alberta should increase Canadian Utilities’ earnings in 2008 to $3.00 a share. The stock trades at 16.0 times that estimate. The $1.33 dividend yields 2.8%. Canadian Utilities is a buy. The more liquid class ‘A’ non-voting shares are the better choice.

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