Scotia Bank Take On AltagasA nice beat for Q1/21. AltaGas' core utility and midstream assets performed well in Q1. AltaGas' Q1 EBITDA of $674m was above our estimate of $614m and consensus of $578m (range $560m- $640m). Adjusted EPS of $1.29 was well ahead of our $1.06 estimate and consensus of $0.92 (range $0.74-$1.06). The quarter benefited from a strong Midstream contribution, in part due to windfall natural gas marketing profits ($80m versus our $50m estimate). EPS was well ahead of our estimate due to the strong EBITDA but also lower interest and depreciation expenses. Utilities came in as expected. Utilities EBITDA for Q1 (seasonally, the strongest quarter) of $371m was in line with our $372m estimate. Benefiting the segment were continued cost control, improving returns at WGL, more favourable weather, and strong retail margins. However, offsetting this was the sale of AltaGas Canada in 2020 ($8m), a one-time Virginia benefit in Q1/21 ($8m) as well as a stronger Canadian dollar ($22m). The quarter was as expected. The regulator recently approved new rates at Maryland that would see revenue increase $13m based on a 9.7% ROE (prior 9.7%, requested 10.45%) and 52% equity thickness (prior 53.5%, requested 54.6%). Our estimates had assumed no change in equity thickness, but the change represents less than a penny of EPS. New rates at Washington were also effective that increases revenue by US$19.5m. The new rates are based on a 9.25% ROE and a 52.1% equity thickness, which was as expected given the settlement. Management continues to expect the company to close the final 150 bpd gap between allowed and earned ROE by the end of 2021. With a rate base annualized growth outlook of 8% through 2025, as well as improving ROEs, we see significant earnings growth potential at its utilities. Exhibit 1: 2021 Guidance Revisions versus our Estimates Note: 2021 guidance breakdown assume 55% of EBITDA comes from utilities as per the company. We assume Corporate is zero based on Q1 results. Source: Company reports; Scotiabank GBM estimates. New 2021 Guidance Old 2021 Guidance Guidance Change SBGM 2021E Est. Low Mid High Low Mid High Low Mid High $m % Delta vs. Mid Utilities ($m) 811 825 839 798 827 855 - - - 819 Midstream ($m) 664 675 686 588 609 630 - - - 685 Corporate ($m) - - - 14 15 15 - - - 7 Adj. EBITDA ($m) 1,475 1,500 1,525 1,400 1,450 1,500 5% 3% 2% 1,511 1% Adj. EPS ($) 1.65 1.73 1.80 1.45 1.50 1.55 14% 15% 16% 1.75 1% Exhibit 2: Q1/21 Overview – A Nice Beat Source: Company reports; Scotiabank GBM estimates; FactSet. Q1/21 Q1/21E % vs. Q1/21 % vs. Q1/20 % Chg. Actual SGBM SGBM Consensus Street Actual Y/Y Midstream $m 304 239 27% 120 153% Utilities $m 371 372 (0%) 369 1% Corporate $m (1) 3 na 10 (110%) Adj. EBITDA $m 674 614 10% 578 17% 499 35% D&A $m (99) (113) (12%) (105) (6%) Interest Expense $m (70) (76) (7%) (70) 0% Taxes (Normalized) $m (102) (98) 4% (82) n.m.f. Pref Dividends $m (13) (14) (9%) (17) (24%) Other $m (29) (17) n.m.f. (5) n.m.f. Adj. Net Income $m 361 297 22% 251 44% 220 64% Adj. EPS $ 1.29 1.06 22% 0.92 40% 0.79 64% FFOPS $ 2.08 1.89 10% 1.51 38% FCFPS $ 1.71 1.48 16% 1.10 55% RIPET Export Volume kbpd 51 49 3% 35 44% EQUITY RESEARCH | DAILY EDGE Thursday, April 29, 2021, Intraday Flash 2 This report is intended for replaceme@bluematrix.com. Unauthorized distribution of this report is prohibited. Strong Midstream results. Midstream Q1/21 EBITDA of $304m was ahead of our $239m estimate. The segment benefited from $80m of windfall profits from its U.S. Transport and Storage business as a result of the volatile natural gas pricing during the quarter. We had expected a $50m benefit - so even adjusting for this, results were ahead of our expectation. Other tailwinds during the quarter were stronger volumes and margins. Ridley Island Propane Export Terminal (RIPET) exports of ~51 mbbl/d were slightly ahead of our estimate.