Canadian Utilities A: Strong Earnings Amid Challenges

Canadian Utilities A ((TSE:CU)) has held its Q1 earnings call. Read on for the main highlights of the call.

Canadian Utilities A’s recent earnings call painted a picture of robust financial health and strategic foresight, albeit with some challenges. The company showcased its strong financial performance and strategic investments, particularly in Alberta and Australia. However, these positive notes were somewhat overshadowed by regulatory uncertainties and project delays, which are affecting the company’s operations and growth prospects in Alberta.

Strong Start to Fiscal Year 2025

Canadian Utilities kicked off fiscal year 2025 on a high note, reporting adjusted earnings of $232 million, up from $225 million in the same period in 2024. This increase translates to adjusted earnings per share of $0.85 for the quarter, signaling a solid financial foundation.

Increased Investment in Alberta Utilities

The company is poised to make significant investments in Alberta, with plans to inject $5.8 billion over the next three years. A substantial portion, $1.5 billion, is earmarked for this year, primarily targeting natural gas transmission through the Yellowhead pipeline project.

Positive Regulatory Decision in Australia

In Australia, Canadian Utilities received a favorable regulatory decision for its gas utility, which now operates under the Sixth Access Arrangement. This decision increased the Return on Equity (ROE) to 8.23% from 5.02%, providing stability across tariffs and investments through 2029.

Strong Cash Generation

The company reported robust cash generation, with cash from operations reaching $637 million in the quarter, a 27% increase from the previous year. This strong cash flow supports ongoing operations, capital programs, and financial commitments.

Growth in ATCO EnPower

ATCO EnPower, a subsidiary of Canadian Utilities, delivered impressive results with an adjusted EBITDA of $37 million, marking a $6 million increase. Adjusted earnings also rose by $3 million compared to Q1 2024, reflecting growth in this segment.

Regulatory Uncertainty in Alberta

Despite these successes, the company faces regulatory uncertainty in Alberta, particularly concerning the restructured energy market and transmission regulations. This uncertainty has led to a pause in future development opportunities within the generation sector.

Challenges in Electricity Generation Business

The electricity generation business encountered difficulties due to lower capture pricing at the Forty Mile Wind facility, stemming from ongoing uncertainty in the Alberta power market.

Impact of Dow Project Delay

Concerns were raised over Dow’s delay in construction at their Path2Zero project in Fort Saskatchewan. However, Canadian Utilities assured stakeholders that this delay does not impact the Yellowhead project.

Lower ROE in Alberta for 2025

The allowable ROE for Alberta Utilities has been reset to 8.97% for 2025, down from 9.28% in 2024. This adjustment is expected to impact earnings, posing a challenge for the company’s financial outlook.

Forward-Looking Guidance

Looking ahead, Canadian Utilities has outlined a $5.8 billion capital investment program over the next three years, focusing on regulated utilities in Canada. The Yellowhead pipeline project, expected to be operational by Q4 2027, is a major component of this plan. The company remains committed to leveraging its natural gas and liquid storage assets, anticipating significant growth and continued strong cash generation to support its ambitious capital program.

In summary, Canadian Utilities A’s earnings call reflected a company in strong financial health, with strategic investments paving the way for future growth. However, regulatory challenges and project delays in Alberta present hurdles that the company must navigate. The forward-looking guidance suggests a focus on substantial capital investments and leveraging existing assets to drive growth.