Q1/24 RESULTS: STRONG START TO 2024 WITH MIDSTREAM OUTPERFORMANCE
THE TD COWEN INSIGHT
ALA strong first quarter results reinforces our view that the stock should outperform in 2024, with the likely sale of MVP and potential FID of REEF expected significant milestones in executing ALA's strategy. The company should provide investors above-utility-average potential returns, albeit at slightly higher execution risk relative to pure-play utility peers.
Event
AltaGas Ltd. (ALA) Q1/24 AFFO/share of $1.58 was above our estimate of $1.36 and
the Q1/23 AFFO/share of $1.57. ALA reported Q1/24 normalized EBITDA of $660mln, which was above recent consensus of $620mln, our estimate of $607mln, and the Q1/23 normalized EBITDA of $582mln.
Impact: SLIGHTLY POSITIVE
Q1/24 Results: Results were above our estimates, largely driven by the Midstream segment which benefited from a number of factors. RIPET's performance with record LPG export volumes of 115.1kbbl/d (up 16% y/y) and higher marketing margins appear to be large contributors to the outperformance. The Utilities segment also was higher than expected, as it appears we underestimated the tailwinds associated with ARP modernization investments, recent rate decisions, customer growth, and higher gas and electric profitability. This outperformance was slightly offset by a turnaround at Blythe.
Guidance Unchanged: On the back of a strong quarter, ALA reiterated its 2024 guidance ranges including EPS of $2.05-$2.25 and normalized EBITDA of $1.675bln-$1.775bln.
Commercial and Project Updates: The MVP pipeline is more than 99% complete and is expected to be in-service in June 2024, after which ALA will consider value maximizing options in its non-core equity stake in MVP. Management expects to make a FID on Ridley Island Energy Export Facility (REEF) during Q2/24. The bulk of ALA's expected 2024 Baltic freight exposure is protected through time charters, financial hedges, and tolled volumes after it commissioned the VLGC Boreal Voyager under a 7-year contract and extended a VLGC time charter with Astomos, subsequent to the December 2023 commissioning of Boreal Pioneer. The first acid gas injection well was drilled for the Pipestone II expansion project. For the remainder of 2024, approximately 90% of expected Global Exports volumes and 83% of expected fractionation volumes are hedged.
Financial Forecasts Updated: We have updated our financial forecasts to largely reflect Q1/24 results and other select refinements, and when combined with our updated outlook our target price remains at $34.00.