Emera Inc

Emera Inc (TSX: EMA) is an energy and services Company based out of Canada. The Company makes an investment in generation, distribution and transmission of electricity and gas.

Key Highlights:

• The company approved a dividend of CAD 0.6375 per common share, payable on or after November 16, 2020.
• On September 24, 2020, the company informed the planned retirement of Nancy Tower, during mid of FY21. Nancy is currently holding the posts of President and CEO of the company.

Q2FY20 Financial Highlights: EMA announced its quarterly results, wherein the company posted total operating revenue of CAD 1,169 million, as compared to CAD 1,378 million in the previous corresponding period (pcp). The decline was primarily due to a decline in revenue from both regulated electric and regulated gas segments. The quarter was marked by a lower performance from Florida Electric Utility segment due to lower clause revenues as a result of lower fuel costs, and improved mix of residential sales and the in-service of additional solar generation projects. Furthermore, lower fuel prices contributed to a decrease in the other electric utility segment and contributed to the overall decline. Income from operations stood lower at CAD 189 million, as compared to CAD 240 million in Q2FY19. The decline was primarily due to a lower revenue, while a decline in the total operating expenses partially supported the profitability. The company reported income before provisions for income tax at CAD 80 million, lower than CAD 101 million in pcp, partially offset by a decline in the interest expense, net. Net income stood at CAD 81 million, as compared to CAD 116 million in Q2FY19.

Q2FY20 Financial Highlights (Source: Company Reports)

Risks: Lower demand from specific regions due to ongoing pandemic is likely to dampen the company’s top-line. Any change in regulations and government policies could affect the overall business of the Company.

Valuation Methodology: Price to Earnings Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of EMA stood resilient in the recent past and corrected marginally ~0.05% so far this year and outperformed the benchmark index by ~4%. The company did not report any significant customer defaults as a result of bankruptcies with many secured by deposits. Within the Florida region, the company reported a 2% improvement in the number of customers, which is encouraging looking at the current situation. Further to support the company’s liquidity, the company has lowered its NSPI’s forecasted FY20 capital investments to ~CAD 305 million, from CAD 375 million earlier. With the gradual re-opening of the economy, we expect the demand to improve, which would support the company’s overall performance. Further, the group continued to distribute dividend amid a challenging operating environment, which is encouraging from an income investor’s point of view. At the last traded price, the stock was offering a dividend yield of 4.57%, which is lucrative considering the current interest rate environment. We have valued the stock using the Price to Earnings based relative valuation approach and arrived at a target price, which suggests a single-digit upside potential (in % terms). For the said purpose, we have considered industry (utilities) mean on NTM basis. Hence, considering the aforesaid facts and current price movement, we recommend a 'Hold' rating on the stock at the closing market price of CAD 55.76 on October 5, 2020.

EMA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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