CANADIAN UTILITIES LTD. - Toronto symbols CU $35 (class A non-voting) and CU.X $35 (class B voting)

CANADIAN UTILITIES LTD. (Toronto symbols CU $35 (class A non-voting) and CU.X $35 (class B voting); Income Portfolio, Utilities sector; Shares outstanding: 125.6 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.6; SI Rating: Above Average) distributes electricity and natural gas in Alberta. It also operates power plants in other parts of Canada, the U.K. and Australia. ATCO Ltd. (Toronto symbols ACO.X and ACO.Y) owns 52.3% of Canadian Utilities. The company is evaluating a proposal to merge its Frontec division with ATCO’s Structures business. Both perform similar functions, including building temporary structures, airfields and communications systems for clients in the resource and construction industries. Canadian Utilities did not say how much this move would save it, but it plans to make a decision by the end of the second quarter. Meanwhile, Canadian Utilities earned $145.4 million, or $1.16 a share, in the three months ended March 31, 2009. That’s 3.3% less than the $150.3 million, or $1.20 a share, it earned a year earlier. If you disregard unusual items, including an insurance benefit stemming from an unplanned outage at its U.K. power plant in the year-earlier quarter, its earnings per share fell 1.7%. This plant is now operating normally, and that helped increase the company’s revenue by 3.8%, to $768.6 million from $740.6 million. Low oil and natural-gas prices continue to hurt the Alberta economy, and this could lower electricity demand. (Alberta supplies over half of Canadian Utilities’ revenue.) However, its regulated operations will continue to produce steady revenue and earnings. Moreover, the stock trades at just 11.9 times the company’s likely 2009 earnings of $2.94 a share. The $1.41 dividend yields 4.0%. Canadian Utilities is a buy. The more liquid class “A” non-voting shares are the better choice.

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One of the sweetest and most profitable pleasures of successful investing is to buy high-quality “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to its sales, earnings or assets), then hold on to them as mainstream investors recognize the value and push up the share price.

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