ALTAGAS LTD.
Q1/24 Results: Helped A Bit By Timing; Progress On REEF
Our Conclusion
Results were helped by timing items in the global export business, but were
solid even after adjusting for those. Strengthening underlying trends,
improving tolling, and a strong hedge book for the midstream business keep
us positive on the stock. Positive catalysts are likely to emerge later in the
year, including the Ridley Island Energy Export Facility (REEF) Final
Investment Decision (FID) and the potential commissioning and sale of
Mountain Valley Pipeline (MVP). We reiterate our Outperformer rating and
maintain our discounted cash flow (DCF) based price target of $36.00.
Key Points
Results Impacted By Timing: Quarterly results were higher compared to
our and consensus estimates, partly reflecting a $26MM timing benefit in the
global export business (ship timing and related hedging gain from higher
tolling). Normalized EBITDA was $660MM, vs. our $614MM estimate and
consensus at $622MM. Full-year mid-point EBITDA guidance of $1.725B
was maintained. Midstream and Utilities beat our estimates, partly offset by
Corporate due to a Blythe turnaround, including some elective spending.
REEF Could FID In Q2: The company is working towards making a final
investment decision on REEF in late Q2/24. Progress in tolling (RIPET is
now 56% tolled for 2024) means that management no longer views
commercial items as a gating factor to FID. Indeed, there are indications of
interest in excess of the project’s capacity. FEED work is also 95%
completed, as is 85% of site preparation. Over 60% of costs are expected to
be fixed-price contracts. The company made clear that it expects to remain
equity self funded in 2024 and beyond, even with a positive FID on REEF.
Mountain Valley Pipeline: The MVP in-service date is expected in June,
allowing the company to take steps towards value maximization. Although
the EBITDA contribution will help with deleveraging, a sale of this non-core
asset helps more. With the lead developer in the process of being acquired,
we foresee the potential for an MVP sale taking longer.
Utilities Could Benefit From Data Center Demand: The company
discussed the increase in power demand from data centers, in turn expected
to increase natural gas demand. Virginia is the largest global data center
market, and Loudon County is entirely in WGL’s service territory. There are
optimization and rate base opportunities that are expected to evolve, but the
company will need to be sensitive to customer rates and must protect itself
from the risk of stranded capital through a measured approach.