Post by
Apaulson on Dec 28, 2023 7:58am
CIBC Analysis
Our Conclusion
Following closing of the acquisition of Tidewater Midstream’s Pipestone area assets, we are resuming coverage with an Outperformer rating and $36 DCF-based price target, up from $34 previously. We view the acquisition as a positive as it fits with the company’s strategy by adding long-life infrastructure assets with meaningful financial accretion, while also providing a growth platform to add long-term LPG supply. While there can be some share flowback given 50% of the transaction was in the form of ALA shares, it is also slightly accretive to leverage metrics.
Key Points
Summary: AltaGas has entered into a definitive agreement to acquire the Tidewater Midstream Pipestone Natural Gas Processing Plant Phase I, the shovel-ready Phase II expansion project, the Dimsdale Natural Gas Storage Facility and the associated gathering pipeline systems, for $650MM. The total consideration includes $325MM in cash and the issuance of ~12.5 million AltaGas common shares to Tidewater, based on the closing price of the AltaGas shares on the day before closing. It also declared FID on the Pipestone Phase II project.
Financials And Valuation:
The transaction represents ~7.2x estimated runrate normalized EBITDA inclusive of synergies and the $355MM - $365MM of incremental capital needed to complete the Pipestone Phase II project. Pipestone I and Dimsdale are being valued at $525MM, which implies ~8.5x expected 2024 EBITDA and ~7.0x run-rate normalized EBITDA, inclusive of synergies. Pipestone Phase II is valued at $125MM, implying ~7.5x expected long-term normalized EBITDA. Overall the transaction is expected to be modestly positive to EPS in 2024 and 5% accretive to EPS in 2025+, while also reducing net debt to normalized EBITDA leverage by ~0.1x in 2025+. Total assets purchased represent $55MM - $60MM of Tidewater's normalized 2023 adjusted EBITDA due to differences in accounting and synergies.
Business Profile Improvement:
With the acquisition, the size of the Midstream platform increases while also reducing the overall commodity price risk. The acquired assets have a 63% take-or-pay or cost-of-service, 30% fee for service, and 7% commodity exposed profile, reducing AltaGas’ commodity exposed position by 6%. Credit rating agencies have published constructive reports on the profile changes.
The acquisition also provides the company with a strong growth platform, derisking global exports by adding long-term LPG supply, including ~3,500Bbls/d in 2024, ~6,500Bbls/d in H2/2025, and the potential for 11,500Bbls/d over the long-term through incremental processing capacity additions beyond Pipestone Phase II.