Unitil Corporation (NYSE:UTL): A Resilient Utility Delivering Consistent Returns

Published on September 24, 2024 | Ticker: UTL

Unitil Corporation (NYSE:UTL) is a public utility holding company headquartered in Hampton, New Hampshire. The company's principal business is the local distribution of electricity and natural gas throughout its service territory in the states of New Hampshire, Massachusetts, and Maine. Unitil operates three wholly-owned distribution utilities - Unitil Energy Systems, Inc., Fitchburg Gas and Electric Light Company, and Northern Utilities, Inc. - which serve approximately 108,500 electric customers and 88,400 gas customers.

Financials

For the full year 2023, Unitil reported net income of $45.2 million on total operating revenue of $557.1 million. The company's annual operating cash flow was $107.0 million, while free cash flow was negative $34.0 million due to elevated capital expenditures. Unitil's strong financial performance is a testament to its disciplined approach to operations and prudent investments in its utility infrastructure.

In the first quarter of 2024, Unitil continued its solid execution, reporting net income of $27.2 million, or $1.69 per share. This represents a 12% increase in earnings per share compared to the same period in 2023. The company's electric adjusted gross margin increased by $0.4 million, or 1.5%, driven by higher distribution rates and customer growth. Gas adjusted gross margin rose by $6.1 million, or 11%, primarily due to the recent rate case outcome in Maine and customer additions.

Unitil's management team remains focused on operational efficiency, as evidenced by the minimal 0.6% increase in operation and maintenance expenses in the first quarter of 2024 compared to the same period in 2023. This disciplined cost management, coupled with constructive regulatory outcomes, has allowed the company to fully earn its authorized returns over the past 12 months on a consolidated basis.

Capital Investment Plan

The company's capital investment plan continues to progress as planned, with a projected 5-year investment of $910 million, a 47% increase over the prior 5-year period. Unitil's thoughtful approach to prudent system investment is expected to enable stable rate base growth within the range of 6.5% to 8.5% annually. The company plans to fund the vast majority of its capital needs through operating cash flows, with the remaining financing requirements met through a balanced combination of debt and equity.

Business Overview

Unitil's geographic footprint is concentrated in the northeastern United States, with operations in New Hampshire, Massachusetts, and Maine. The company's electric and gas distribution businesses are subject to regulation by state public utility commissions, which approve rates and authorize the recovery of prudently incurred costs. Unitil's interstate gas transmission pipeline, Granite State Gas Transmission, Inc., is regulated by the Federal Energy Regulatory Commission.

In terms of revenue breakdown, Unitil's operations are primarily divided into electric and gas segments. For the full year 2023, electric operating revenue accounted for $273.6 million, or 49% of total revenue, while gas operating revenue contributed $283.5 million, or 51% of total revenue. The company's electric and gas sales volumes are largely decoupled from revenue, mitigating the impact of weather-related fluctuations on earnings.

Liquidity

Unitil's financial ratios demonstrate its strong financial position. As of March 31, 2024, the company had a current ratio of 0.68 and a quick ratio of 0.63, indicating adequate liquidity to meet short-term obligations. The company's debt-to-capitalization ratio was 57%, reflecting a prudent capital structure. Unitil's return on equity of 10% and return on assets of 3% are in line with industry benchmarks.

Outlook

Looking ahead, Unitil is reaffirming its long-term guidance of 5% to 7% growth in earnings per share, supported by its projected rate base growth of 6.5% to 8.5% and a dividend payout ratio between 55% and 65%. The company's recent rate case filings in Massachusetts, including a proposed 5-year performance-based ratemaking plan for its Fitchburg Electric and Gas divisions, are expected to provide additional revenue growth opportunities.

Sustainability Efforts

Unitil's commitment to sustainability is also noteworthy, as the company was recently honored with the 2024 Climate and Energy Sustainability Award by the New Hampshire Businesses for Social Responsibility. This recognition underscores Unitil's focus on integrating sustainability into its key initiatives, strategies, and corporate values.

Conclusion

In conclusion, Unitil Corporation is a well-managed utility company delivering consistent financial performance and shareholder returns. Its disciplined approach to operations, prudent capital investments, and constructive regulatory relationships position the company for continued success in the years ahead. Investors seeking a stable, dividend-paying utility with a focus on sustainability may find Unitil an attractive addition to their portfolios.

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