Emera Inc.

Emera Inc. (TSX: EMA) is a Canada-based energy and services company. The Company is into electricity generation, transmission, and distribution as well as gas transmission and utility energy services.

Why Should Investor Book Profit?

• Underperformance on Margin Front: The company’s reported margin is well below the industry median, be it EBITDA margin, Operating margin, and Net margin, on every front company reported lackluster performance in the quarter just gone by.
• Highly Leveraged: The company has significantly higher Debt contribution in the total capitalization, with Debt/Equity ratio of 1.86x whereas industry median stood at 1.12x, which implies a greater balance sheet risk for the investors.
• Poor Protection Metrices: Together with higher debt contribution, the company is having poor protection metrices, with Net Debt is approximately 60 times of the EBIDTA as of June 30, 2021, whereas industry average is 20.76x.
• Generating Negative Free Cash Flows: The company is having negative free cash flows, which implies that company’s dependency on borrowed fund will increase further and it is likely that current dividend distribution would not sustain in future.

Valuation Methodology:  Price to Earnings-Based

Stock Recommendation

Given the higher balance sheet risk associated with company, and valuation done using the Price to Earnings methodology, we recommend a “Sell” rating at the closing price of CAD 58.20 (October 28, 2021).

Technical Price Chart (October 28, 2021). Source: REFINTIV, Analysis by Kalkine Group

AltaGas Ltd

AltaGas Ltd. (TSX: ALA) is a diversified energy infrastructure company. The Company’s segments include Utilities and Midstream.

Why Investors Should Book Profit?

• Relatively Higher Balance Sheet Risk: As of June 30, 2021, the company’s Debt/Equity ratio stood at 1.30x higher than the industry median of 1.11x. Further, the company has poor debt protection metrics with Net Debt is approximately 30.84 times of the EBITDA as of June 30, 2021, compared to Industry median of 25.34x, implies higher balance sheet risk for the company.
• Generating Lower ROE compared to Peer’s Average: From the peer comparison standpoint, AltaGas TTM ROE of 7% (Common Equity) is relatively lower compared to the industry mean of 7.9%, implies that shareholders are getting a lower return on their money where average companies in the same space generating better ROE% (common equity).
• Utilities Segment EBITDA declined in Q3FY21: The Utilities segment reported normalized EBITDA of CAD 62 million in the third quarter of 2021 compared to CAD 80 million in the third quarter of 2020. Results were reflective of typical seasonality in the summer and fall when natural gas demand declines during the shoulder season.
  

   Valuation Methodology: Price to Earnings-Based Valuation

Stock Recommendation

The company is not having a competitive strength against its peer’s given its higher balance sheet risk, poor debt protection metrics and lower ROE compared to industry peers. Hence, based on the above rationale and valuation done we recommend a “Sell” rating at the closing price of CAD 26.16 (October 28, 2021).

Technical Price Chart (October 28, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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