CANADIAN UTILITIES LTD. (Toronto symbols CU (class A non-voting) $53 and CU.X (class B voting) $53; Income Portfolio, Utilities sector; Shares outstanding: 125.9 million; Market cap: $6.7 billion; Price-to-sales ratio: 2.5; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.canadianutilities.com) distributes electricity and natural gas in Alberta. It also operates 19 power plants in Canada, Australia, and the U.K., and sells its expertise to other firms. ATCO Ltd. owns 52.8% of the company.
Canadian Utilities is investing $5 billion in new growth projects over the next three years. For example, it will spend $1.6 billion to build a new power-transmission line between Edmonton and Calgary. It will also spend $800 million on new transmission lines in southeastern Alberta.
These new lines will help transmit power from new wind farms and hydroelectric plants as Alberta phases out its coal-fired generators. Only two of Canadian Utilities’ 19 plants use coal; 16 burn natural gas, and the other one is a hydroelectric facility.
In 2010, Canadian Utilities earned $440.9 million, or $3.50 a share. That’s up 3.1% from $427.6 million, or $3.40 a share, a year earlier. These figures exclude unusual items, mostly gains and losses on hedging contracts that Canadian Utilities uses to lock in natural-gas prices.
Revenue rose 2.8%, to $2.7 billion from $2.6 billion, mainly due to the start up of a new power plant in Australia.
The company will probably earn $3.46 a share in 2011. The stock trades at 15.3 times that estimate. That’s a reasonable p/e ratio in light of the steady cash flows it gets from its regulated operations.
Canadian Utilities is a buy. The more liquid class “A” non-voting shares are the better choice.