AltaGas Ltd T.ALA

From RBC

[Al42]

February 28, 2021AltaGas Ltd.Racing ahead in 2021 with its foot on the gasOur view: We continue to view the stock as an attractive “utility” pickwith the utility assets being enhanced by the midstream exposure thatis benefiting from strong commodity spreads that we believe may resultin management increasing its 2021 guidance. As AltaGas executes on itsplan to de-risk the midstream business (e.g., tolling arrangements for LPGexport) and generates revenue synergies by integrating Petrogas, we thinkthe market may better appreciate the stock’s intrinsic value, or AltaGasmay take steps to surface value in the medium term (e.g., splitting up thebusiness).Key points:We think 2021 guidance could prove to be conservative. While it is far tooearly in the year for the company to revise guidance (it was reiterated),we note that our revised 2021E EBITDA of $1.5 billion is the high end ofAltaGas’s $1.4–1.5 billion guidance range and our 2021E EPS of $1.58 isabove the $1.45–1.55 guidance range.AltaGas is focusing on business optimization in 2021. AltaGas did agood job in 2020 of improving returns at its utilities and management istargeting an improvement of another 150 basis points in achieved ROEover the course of 2021 through capital, regulatory, and cost discipline. Onthe midstream side, AltaGas is focused on integrating Petrogas, increasingthroughput at RIPET, and de-risking the business by signing additionaltolling contracts for LPG export.Steadfast in its goal to reduce leverage. Management highlighted thatreducing debt leverage below 5.0x debt/EBITDA remains an importanttarget, and it expects that it can achieve this delevering througha combination of growing EBITDA (through investment in rate base,optimization, cost savings, etc.) and asset monetizations with the focus onselling its 10% stake in the Mountain Valley Pipeline (MVP). Managementexpects MVP to be completed by the end of 2021 and, importantly,AltaGas is protected against capital cost increases.Revising estimates to reflect stronger commodity margins andheadwinds from FX. Our 2021 and 2022 EPS estimates are now $1.58 and$1.73 (up from $1.48 and $1.69), respectively. In both years, we expect thepositive impact from stronger commodity margins to be partially offset bya weaker U.S. dollar.Valuation: raising price target to $22.00 from $21.00. We continue touse a sum-of-the-parts analysis, and given our revised financial forecastcombined with modest changes to our valuations reflecting movement inthe peer group (up for Midstream; down for Utilities), our new sum-of-the-parts range is $19–24/share (up from $18–23/share), with our pricetarget being near the midpoint.

[Johnwith30years]

Thanks for post of RBC's view. I note that Robert has been one of the most conservative analysts out there and that he is not yet contemplating a raised guidance nor a possible split of company assets. So to see him already raising his target is a strong endorsement. I'll post any changes TD offers.