Incitec Pivot Ltd T.IPL

Desjardins' take on IPL, fresh from this morning.

[mmodano]

They seem more cautions than other firms, mainly because of the PDH project but overall positive on the stock:

Inter Pipeline Ltd. (IPL, TSX, Hold–Average Risk, C$28 target)

Investor interest with relation to Inter Pipeline continues to be centered around the cash flow generation potential of its Williams Canada acquisition and its potential integrated PP/PDH facility (for which a sanctioning decision, as well as colour on the contract structures—both for customers providing propane and for buyers of polypropylene—and construction contracts are expected by year-end).

Inter Pipeline’s share price began to decline in early May, falling to ~C$22 in late August (from ~C$28), but has since rebounded to ~C$25.50 over the past few weeks. While the catalyst spurring the decline is difficult to pinpoint, it did seem to coincide with a general sell-off across the midstream sector, weak sentiment for oil markets and oil equities, and an overarching concern about the cost and potential risks associated with the PP/PDH facility. Following the drop in share price, Inter Pipeline now screens very attractively relative to its peers, especially given its high-quality asset base (anchored by its oil sands transportation segment), stronger NGL pricing in recent months, an improved outlook for crude and NGL pricing, and increased volumes to its Cochrane straddle plant.

That said, we continue to highlight our caution around the stock, owing to heightened risks surrounding the integrated PP/PDH facility. The contract structure for propane producers and polypropylene buyers remains unknown—although we are encouraged that Inter Pipeline is willing to delay project sanctioning until it can get the right contracts in place. And the specifics around the project construction—for example, which party would be responsible for cost overruns—also remain unknown. Given the large size and heightened complexity of the project, the risk of cost overruns is significant and Inter Pipeline’s strategy to mitigate this risk is important. Thus, while we await further details surrounding the outcome of its proposed PP/PDH facility, we are reiterating our Hold–Average Risk rating and reducing our target price to C$28 (from C$30 previously).