Emera Incorporated (TSX: EMA) is an energy and services company which invests in electricity generation, transmission and distribution, and gas transmission and distribution.

Key Updates:

• Highly Leveraged Balance-sheet: At the end of Q1FY22, the company reported a debt-to-equity ratio of 1.82x, as compared to the industry median of 1.21x. This might result in lower financial flexibility along with higher interest costs.
  

• Slight decline in liquidity: At the end of Q1FY22, the company reported cash balance of CAD 381 million, which is slightly lower than USD 394 million in Q4FY21. Current ratio at the end of Q1FY22, stood at 0.66x, as compared to 0.73x. This indicates poor working capital management and lower operational efficiency.
  

• Surge in Operating expense: The company reported a higher operating expense of CAD 1,436 million, which is higher than CAD 1,175 million in pcp. This was primarily due to the higher price for regulated fuel for generation and purchased power and a surge in regulated cost of natural gas expense. Additionally, operating, maintenance and general costs also stood above the previous corresponding period. Continuation of the above trend might lead to decline in profitability and cash flows.

Stock Recommendation:

The company’s reported an increase in input costs along with higher D/E ratio, which remains a key concern for the company’s upcoming performance. However, in 2022, capital investment in the Gas Utilities and Infrastructure segment is expected to be approximately CAD 485 million, as the company is making fresh investment in order to maintain the reliability of its system and support customer growth.

The stock of EMA is available at an EV to Sales multiples of 5.1x on NTM basis, higher than the industry (Utilities) median of 4.7x. Considering the aforesaid facts, we recommend a ‘Watch’ stance on the stock of EMA at the last closing price of CAD 61.66 on May 13, 2022.

One-Year Technical Price Chart (as of May 13, 2022). Analysis by Kalkine Group 

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

 Technical Analysis Summary

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