Emera Inc. $20 – Toronto symbol EMA

EMERA INC. $20 (Toronto symbol EMA; Income Portfolio, Utilities sector; Shares outstanding: 110.9 million; Market cap: $2.2 billion; SI Rating: Average) is the main supplier of electrical power in Nova Scotia, with 470,000 customers. It also provides power to 115,000 customers in Bangor, Maine. Right now, the company gets over 80% of its income from its main Nova Scotia Power subsidiary. Through acquisitions and investments, Emera eventually aims to cut this to 65%. For example, the company plans to invest $350 million in a new pipeline that will transport natural gas from a planned liquefied natural gas terminal in Saint John, New Brunswick to markets in Canada and the Northeastern United States. Emera also recently paid $22 million U.S. for a 19% stake in the main electrical utility on the Caribbean island of St. Lucia. The company earned $1.12 a share (total $125.8 million) in 2006, including a $5.5 million after-tax gain from an insurance settlement. That’s 1.8% more than the $1.10 a share ($122.1 million) it earned from continuing operations in 2005, which included $19.7 million in unusual after-tax gains. Revenue was unchanged at $1.17 billion. The company is doing a good job controlling its costs, and income should rise to $1.14 a share in 2007. The stock trades at 17.5 times that figure. The high earnings should let Emera raise its $0.89 dividend, which yields 4.5%. Coal accounts for about 80% of Emera’s fuel needs, which makes it vulnerable to rising coal prices. Emera cuts this risk with long-term supply contracts. In 2007, these contracts should cover 95% of Emera’s coal needs. The company’s heavy use of coal also increases the likelihood of more environmental regulation. Investments in new scrubber technologies, as well as buying more power from wind farms and other sources of renewable energy, should help cut this risk. Emera is a buy.