RBC Initial CommentsHere are RBCs first comments. After the conference call they will issue a final update.
February 15, 2023
Keyera Corp.
Quick Take: KAPS on the cusp of completion
TSX: KEY | CAD 31.25 | Outperform | Price Target CAD 36.00
Sentiment: Positive
Our take
We believe the market will look past the modestly lower-than-expected results and instead focus on the KAPS disclosures (i.e., positive by virtue of not being negative) and to a lesser extent, the Pipestone expansion. While the bar is admittedly pretty low for updates on KAPS, we believe no increase in the cost estimate will be treated as good news, particularly in tandem with tangible evidence that KAPS is on track for imminent completion (e.g., linefill commencing).
Details
Core segment results were in line with our forecast, although overall EBITDA and DCF/share were modestly below our forecast and slightly below consensus. In Q4/22, Adjusted EBITDA was $212 million compared to our forecast of $229 million and consensus of $218 million (13 estimates; range of $205-235 million). DCF/share was $0.47 compared to our forecast of $0.57.
• Gathering and Processing: Q4/22 realized margin was $93 million compared to our forecast of $94 million.
• Liquids Infrastructure: Realized margin in Q4/22 was $102 million compared to our estimate of $103 million.
• Marketing: Q4/22 realized margin was $49 million compared to our forecast of $58 million.
KAPS: 99% complete, no change in cost estimate and linefill begins. Keyera noted that the project is "substantially complete" with commissioning and linefill activities underway. Further, the company stated that its final cost estimate remains unchanged at $1.0 billion (net to Keyera). Keyera anticipates KAPS will be operational in Q2/23 (previously "end of the first quarter of 2023").
Pipestone expansion given the green light. Keyera highlighted that it sanctioned a 40 MMcf/d expansion at its Pipestone gas plant, which will increase capacity to 260 MMcf/d. The project is underpinned by long-term, take-or-pay agreements and carries a capital cost of between $60-70 million. Timing wise, the expansion is subject to regulatory approval, which Keyera expects to receive in March 2023, and if approved, the company believes the project could be completed in Q1/24.
Modest updates to 2023 guidance items. Keyera expects growth capex to range between $200-240 million (up from $140-180 million) to primarily reflect KAPS capital spending that shifted from 2022 to 2023, and the company now anticipates no cash taxes in 2023 (previously $10-25 million of cash taxes). Of note, Keyera will release Marketing guidance in early May following the conclusion of the NGL contracting season.
Conference call: today at 10:00 AM (ET)
The dial-in number is 1-888-664-6392