Although the 2024 guidance and Investor Day messages were in line with our expectations, we believe the Investor Day will underscore AltaGas' attractive investment proposition versus both its midstream and regulated utility peers. Specifically, we expect the presentation to highlight: (1) the strong near-term growth, including guidance implying EBITDA and EPS growth of 11% and 10%, respectively from the mid-points of the 2023 guidance ranges to the mid-points of the 2024 guidance ranges; (2) a dividend payout of 55% based on the mid-point of the 2024 EPS guidance, which would be well-within the company's 50-60% EPS payout ratio target; (3) the potential to de-risk existing cash flows, including increased tolling and hedging for the Global Exports business (73% of export volumes are tolled and hedged with 78% of ocean freight costs being hedged in 2024); and (4) future growth including utility rate base investment driving up to an 8% rate base CAGR through 2028, as well as midstream opportunities including the Ridley Island Energy Export Facility (REEF) project, which AltaGas and its partner could reach a potential final investment decision in H1/24.
Details
Guidance for 2024 is consistent with our estimates and consensus. As part of the Investor Day announcement, AltaGas provided its guidance ranges for 2024 EBITDA of $1.675-1.775 billion, which compares to our forecast heading into the release of $1.739 billion and consensus of $1.717 billion (nine estimates; range of $1.652-1.770 billion). For EPS, the company's guidance is $2.05-2.25, which compares to our forecast heading into the announcement of $2.16 and consensus of $2.14 (nine estimates; range of $2.02-2.24).
Dividend increased by 6%. The new annualized rate is $1.19/share, which is essentially in line with our forecast for an increase to $1.18/share. Looking forward, AltaGas stated that it "remains committed to delivering regular, sustainable, and annual dividend increases", while further noting that wants to maintain a "prudent" payout ratio target of 50-60% of earnings, which it believes will allow for sufficient retained cash flow to continue its equity self-funded growth model (i.e., no DRIP, ATM or discrete equity issuance to fund organic capex).
Capex guidance for 2024 is fairly close to our forecast. The company expects capex of $1.2 billion, excluding asset retirement obligations, which is close to our forecast of just under $1.3 billion. AltaGas expects to allocate 58% of its capex to Utilities, 36% to Midstream and 6% to Corporate. The company anticipates funding its capex from internally generated cash flow and balance sheet capacity.
Committed to reducing debt/EBITDA towards 4.5x. AltaGas continues to see the sale of its 10% stake in the Mountain Valley Pipeline (MVP) as the most immediate path to moving towards its goal, while noting that it will evaluate this option as the MVP project moves towards completion.
Event Details: Today at 9:00 AM (ET)