Emera Earnings: Marketing and Trading Business Drives Results

We are maintaining our CAD 54 fair value estimate for Emera EMA after the company reported first-quarter operating earnings per share of CAD 0.99 compared with CAD 0.93 in the year-ago period. Our narrow moat rating is unchanged.

Emera benefited from strong earnings at its marketing and trading business. Earnings were more than double the contribution from the segment for all of 2022. Some of these benefits are expected to reverse later in the year, leaving the segment’s full-year earnings outlook unchanged at CAD 15 million-CAD 30 million. These benefits were partially offset by mild weather at Tampa Electric and Nova Scotia Power and higher interest expense.

The company invested CAD 600 million in the quarter, putting it on track to invest nearly CAD 3 billion for the full year, in line with our expectations. Its broader three-year CAD 8.4 billion capital investment plan is focused on the fast-growing Florida utility, which benefits from better-than-average rate regulation. Emera’s Labrador-Island Link transmission line was commissioned in April.

In Florida, customer growth exceeded 2% in the electric business and near 5% at the gas business, highlighting the benefits from a fast-growing region and the clean energy transition. Peoples Gas recently filed a request for new customer rates, and we expect a constructive outcome. The company’s electric utility in Florida receives above-average allowed returns with little regulatory lag.

The company will need to continue to manage its large growth capital investment needs while maintaining an investment-grade credit rating. While all ratings were confirmed recently, Emera’s corporate credit ratings remain on negative outlook. We think management could dial back some investment in Florida to achieve its goal of continued cash flow/debt greater than 12% and corporate debt/total debt of less than 40%. We also expect the dividend to grow more slowly than earnings.