Incitec Pivot Ltd T.IPL

Initial comments from TD Waterhouse

[hawk35]

Inter Pipeline Ltd.
(IPL-T) C$22.48
First Glance: IPL Q3/19 Results
Linda Ezergailis, P.Eng.
Max Peters, CA, (Associate)

Event
Inter Pipeline Ltd. (IPL) Q3/19 AFFO/share of $0.46 was largely in-line our forecast
and recent consensus of $0.45, and below Q3/18 AFFO/share of $0.71.
 
Impact: MIXED

Q3/19 Results Largely In-Line With Forecasts: IPL Q3/19 results were
overall largely in-line with our forecasts, as weaker-than-expected NGL results
were mostly offset by stronger-than-forecast conventional and oil sands
contribution. NGL FFO results were impacted by planned outages at three
facilities and narrower olefinic and paraffinic frac-spreads. While conventional oil
pipelines continued to face headwinds from increased competition around Mid-
Saskatchewan and reduced midstream marketing activities, we had predicted a
larger revenue decline. Sustaining capital expenditures also came in lower than
expected which is discussed further below.
 
European Bulk Storage: Utilization at IPL's European Bulk Storage facilities
came in at 92% in Q3/19, up from Q3/18 of 74%, as well as Q2/19 utilization
of 83%. The company recorded a non-cash goodwill impairment charge of $40
million related to its Denmark facilities in Q3/19. IPL continues to explore a
potential sale of the business which was announced in August, although no
material updates were available as of the Q3/19 report. We had previously
estimated the business could fetch in the 10x-11x EBITDA range, which based
on our current 2019 estimates implies proceeds of $1.1-$1.2 billion. We view the
potential sale as an efficient way to source capital to be used toward funding IPL's
capital program.
 
Sustaining Capital Expenditure Reclassification: In Q3/19 IPL adjusted
disclosure to reclassify corporate sustaining capital expenditures into growth
capital expenditures. The purpose of the reclassification is to improve alignment
with management's view of non-discretionary capital spending. The result was
a net negative sustaining capital expense of $8.7 million in Q3/19. To illustrate
how the results might compare to our estimates pre-reclassification, we used the
net capex of $6.7 million as a placeholder for corporate sustaining capex and
calculated a difference of approximately ($0.02)/share. We expect IPL will provide
an update on the reclassification impact to 2019 sustaining capex guidance, which
was previously $120 million.
 
Conference call today at 11:00 am ET: Telephone: [phone], Passcode:
8829797. Replay: 1-855-859-2056, Passcode: 8829797.