Post by
CanSiamCyp on Dec 19, 2023 12:11pm
BMO analyst update
Resuming Coverage at Outperform Following Alliance/Aux Deal; Target to $52 vs $51
Bottom Line:
PPL's acquisition of additional interests in Alliance and Aux Sable for ~$3.1B was not front and centre for us, but we believe that PPL is the logical buyer and the transaction is immediately accretive, leverage neutral, and has potential long-term upside (not yet reflected in our estimates). Moreover, it reinforces our recent view that the probability of a potential acquisition of TMX (which has weighed on shares) is low. We are maintaining our Outperform rating and the target moves to $52 (vs. $51).
Key Points
Key incremental points:
• Expected to be accretive to the tune of ~6% adj. CFPS in the first full-year (2025E) including synergies of $40-65M (see Exhibit 1 for the math). Synergies are largely from cost reduction, with the remainder from optimization and smaller-sized growth projects. Txn implies ~9x 2023/24E adj. EBITDA and ~8x post synergies (expected to be realized by 2025).
• Post-2030, PPL could unlock an additional ~100k bbl/d in Marketing or about 50% increase.
• PPL will now own 100% of Alliance, Aux Sable Canada, and NRGreen (vs. 50% before) and 85.4% of Aux Sable US (vs. 42.7% before; Williams still owns remaining 14.6%).
• Based on Exhibit 2, we estimate remaining average weighted contract length of close to six years, with ~5% of capacity expiring in 2024, ~15% in 2025, and ~35% in 2026.
• The acquired business is 80-90% fee-based; combined, PPL is still 85-90%.
• On a potential acquisition of TMX, we believe it is still in the cards but view probability as low and likely not a catalyst (positive or negative) until end of 2024.
• Deal is expected to be leverage neutral, where we estimate debt/EBITDA moves up slightly by ~0.15x in 2025E to ~3.4x. To finance the ~$3.1B deal, PPL issued ~$1.3B subscription receipts, increasing shares o/s by ~5%. With ~$0.3B assumed debt, the remaining ~$1.5B funding is expected from new corporate debt and/or draws on the revolver.