Emera Inc. $20 – Toronto symbol EMA

EMERA INC. $20 (Toronto symbol EMA; SI Rating: Average) supplies roughly 95% of Nova Scotia’s electricity needs. This business accounts for over 80% of its income. It also owns the main electrical utility in Bangor, Maine, and holds interests in other power-related projects.

In the three months ended December 31, 2005, Emera earned $0.34 a share from continuing operations, up 25.9% from $0.27 a year earlier. The savings from a new natural gas supply deal helped offset higher oil and coal costs. Revenue rose 3.7%, to $297.1 million from $286.5 million.

Nova Scotia regulators let the company raise its power rates by 5.3% in 2005. Emera is now asking for a 13% hike in 2006, to cover its higher fuel costs. However, regulators will probably reject this request and approve a smaller rate hike.

The company’s cash flow per share fell 6.6% in 2005, to $2.25 from $2.41 a year earlier, so it can easily afford its $0.89 dividend (4.5% yield). However, new investments in equipment to cut harmful emissions will increase Emera’s capital spending in 2006 to about $1.65 a share, up 57% from $1.05 in 2005. Emera will probably borrow some of the cash it needs for these projects, which would add to its long-term debt of 1.2 times equity.

Like Fortis, Emera now aims to cut its reliance on its home province with new investments in other parts of Canada and the United States. But unlike Fortis, the company will target single plants instead of entire systems.

The stock now trades at 19.2 times its forecast 2006 profits of $1.04 a share, and at 8.0 times cash flow of $2.49 a share.

Emera is a buy.

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