Valener wants to build on acquisition of Central Vermont Public Service Corp.

MONTREAL - Valener Inc., which has a stake in Quebec natural gas distributor Gaz Metro, will keep looking for acquisitions with its purchase of Vermont's largest electrical utility serving as an anchor for future development in the northeastern United States, the company said Monday.

"This investment in Vermont positions us very well," chief financial officer Pierre Despars said of Valener's US$702-million deal to acquire Central Vermont Public Service Corp. that's expect to close this summer.

"Vermont is being our anchor for future development in the northeastern United States," he said in an interview after Valener posted a lower quarterly net income of $10.1 million.

Despars also said that Valener (TSX:VNR) is looking at other acquisition possibilities in Canada.

If the deal closes as expected, Gaz Metro would merge Central Vermont with Green Mountain Power, a subsidiary of Gaz Metro that is Vermont's second-largest electric utility.

The combination of the two Vermont power distributors will mean savings for customers of $144 million over a 10-year period, Despars said. The combined utilities will serve about 72 per cent of Vermont's electric customers, he added.

Chief executive Sophie Brochu also told a conference call that combining the two utilities will provide a springboard for increasing net income.

In its financial results, Valener said its first-quarter net income slipped to $10.1 million, or 27 cents per share, affected by a warm start to the winter season.

That compares with a net profit $11.1 million or 31 cents per share a year earlier. Revenues dropped to $536.6 million from $577.8 million.

During the quarter, Gaz Metro's net income reached $54.8 million, down $5.9 million from the same quarter last year. Valener owns a 29 per cent stake in Montreal-based Gaz Metro.

Valener said the lower earnings stem from a $1.7-million decrease in its share of Gaz Metro earnings, partly offset by a $1.2 million decrease in income taxes.

Despars said warm weather in the quarter reduced sales to residential and commercial customers, impacting the quarter ended Dec. 31.

"It was really unusual in terms of variance from the normal weather."

Natural gas transportation revenues were also affected by lower consumption by customers and were insufficient to cover the costs incurred, Valener said.

But Valener said the results don't affect the fundamentals of Gaz Metro, its main investment.

"Gaz Metro's system gas price is currently at its lowest level in more than 11 years and the outlook for its competitive position remains strong given the size of new gas reserves available in North America," the company said.

Valener (TSX:VNR) also owns an indirect 24.5 per cent stake in wind power projects jointly developed by Beaupre Eole General Partnership and Boralex Inc. on private lands in Quebec.

Desjardins Financial analyst Pierre Lacroix said Valener's results were slightly below expectations. Lacroix said he had estimated earnings per share at 31 cents, four cents higher than Valener's reported 27 cents.

"Overall, the long-term outlook remains substantially unchanged for Gaz Metro and Valener," he said in a research note.

Lacroix has a target price of $16.75 for Valener.

Shares in Valener were up 10 cents to $16.27 in early afternoon trading on the Toronto Stock Exchange.