Post by
hawk35 on May 11, 2022 11:03am
RBC Target increased to 37.00
May 10, 2022
Keyera Corp.
Reving up the 2022 Marketing engine
Our view: With the recent Investor Day in March, we viewed most of the quarterly updates as incremental, although we note the increase in guidance for 2022 realized Marketing margin. While Marketing results can be volatile, we positively view the potential for the stronger than previously forecast Marketing cash flow to more rapidly reduce balance sheet leverage, which would pave the way for other capital allocation decisions including dividend increases and/or share buybacks.
Key points:
Increased 2022 Marketing outlook. Despite only rolling out its 2022 Marketing guidance range at its Investor Day on March 29, Keyera increased its Marketing guidance as part oftheQ1/22 results to a new realized margin range of $300-340 million (up from its prior range of $250-280 million). Also, due to its revised Marketing outlook, Keyera now expects higher cash taxes in the range of $30-40 million (previously $15-30 million).
No material updates for KAPS, as expected. Keyera noted that the project is nearly 70% complete and on-track for a Q1/23 in-service date. Cost[1]wise, the company's capex estimate for the project of $800-880 million is consistent with its commentary at the March 2022 Investor Day. The company highlighted that its cost estimate includes the purchase and receipt of all of the required steel pipe, and the "vast majority" of other materials.
Q1/22 results were fairly close to our forecast. In Q1/22, Adjusted EBITDA was $257 million versus our estimate of $245 million and consensus of $248 million (11 estimates; range of $222-263 million). During the quarter, DCF/share of $0.81 matched our estimate with the modestly better-than[1]expected EBITDA being offset by higher-than-forecast cash taxes booked in Q1/22. Please see Exhibit 1 on page 3 for additional details.
Revising our 2022 forecast for higher Marketing contribution; very slight changes to 2023. In 2022, we now forecast EBITDA of $975 million (up from $936 million) and DCF/share of $2.85 (up from $2.62), primarily due to stronger forecast Marketing margins. Our new 2023 EBITDA estimate is $1.005 billion (down from $1.019 billion) and our revised DCF/share estimate is $3.12 (down from $3.14) as a result of modestly higher forecast G&A expense.
Valuation: increasing our price target to $37.00 (up from $35.00). In line with valuation adjustments we have made for other midstream stocks we cover, particularly with those levered to potential increases in WCSB natural gas and NGL production, we have modestly increased our EV/ EBITDA valuation to 11.5x (up from 11.0x).