CANADIAN UTILITIES LTD. - Toronto symbols CU

CANADIAN UTILITIES LTD. (Toronto symbols CU (class A non-voting) $47 and CU.X (class B voting) $47; Income Portfolio, Utilities sector; Shares outstanding: 125.9 million; Market cap: $5.9 billion; Price-to-sales ratio: 2.2; Dividend yield: 3.2%; SI Rating: Above Average) distributes electricity and natural gas in Alberta. It also operates 19 power plants: 15 in Canada, two in the U.K., and two in Australia, As well, Canadian Utilities sells engineering services to other utilities. ATCO Ltd. owns 52.3% of the company. Canadian Utilities’ 2009 revenue fell 7.0%, to $2.6 billion from $2.8 billion in 2008, partly due to lower electricity prices in Alberta. But thanks to improving efficiency and regulatory relief, its earnings rose 5.9%, to $3.40 a share (or a total of $427.6 million) from $3.21 a share (or $403.2 million). The company aims to fuel long-term growth with new projects. For example, it will soon begin work on a $1.65-billion power transmission line between Edmonton and Calgary. Canadian Utilities is also considering building a hydroelectric plant in northern Alberta, and new lines to transmit its power to the southern part of the province. In all, it expects to spend $3.5 billion to $4.5 billion on new projects from 2010 to 2012. Alberta supplies over half of Canadian Utilities’ revenue, and low natural-gas prices or a drop in oil prices could hurt the province’s economy. That would cut electricity demand. However, Canadian Utilities’ regulated operations will continue to give it steady cash flows. The stock trades at 14.4 times its likely 2010 earnings of $3.26 a share. Canadian Utilities is a buy. The more liquid class “A” non-voting shares are the better choice.

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