EUR 850.00 For Business Accounts Only

Morningstar | Emera Focuses on Reducing Leverage, Reports Strong 2018

We are reaffirming our CAD 46 per share fair value estimate, along with our narrow economic moat and stable moat trend ratings, after Emera reported full-year operating earnings of $2.88 per share versus $2.46 in the same year-ago period. Management does not issue earnings guidance. Emera's 4% to 5% dividend growth target supported by 6% rate base growth stands.

Emera continues to focus on minimizing equity needs for its 2019 to 2021 capital plan.  While Emera will fund its capital plan mostly with internally generated cash flow and debt at its regulated utilities, Emera will sell certain assets to fund 20%-30% of the $6.5 billion we forecast Emera to need over the next three years.

Emera moved toward that goal by recently selling its 1,100 megawatts of Northeast power generation facilities for $590 million. Additional asset sales should provide another $600 million to $1.2 billion in proceeds. Management has kept quiet on which assets it plans to sell, but we think its slower-growth assets in Maine and the Caribbean may be candidates. Depending on the asset sales, Emera may issue up to $600 million in equity.

We like management's focus on reducing leverage, which peaked at 64% debt/capitalization in 2016, and is among the highest of its utility peers. Management's 55% target would bring leverage more in line with its peer group.

Emera's growth investments remain on track, with the bulk of its growth directed toward its Florida utilities. The company's TECO unit is progressing with its plans to install 600 MW of solar in Florida, to be completed in early 2021. The $850 million Big Bend modernization, which will repower unit 1 to natural gas, is on schedule. Outside the U.S., the $1.8 billion rate base undersea Maritime Link project was placed in service last year.