CIBC Raises....G&M In a research report released Friday, CIBC World Markets analyst Robert Catellier revised his valuations for TSX-listed energy infrastructure companies, “taking longer-term approach as pandemic risk subsides.”
“At the onset of COVID, we moved away from DCF valuations to a multiple-based approach, figuring the market would be fixated on short-term factors. We now revert back to our preferred DCF-based valuation methodology as we are comfortable that the risk from the pandemic has subsided enough to more heavily weight a longer-term outlook,” he said.
“As the pandemic risk subsides, we see industry risk factors changing from access to capital and counterparty credit risk to more concern about inflation and interest rates. Labor inflation is worth monitoring, but we see more risk to capital cost inflation. We believe some projects have seen returns compress from this development; however, we expect future projects to reflect higher costs for steel, which is a common issue for every operator on new projects. Hence, the industry should adjust for this reality in pricing new projects.”
A day after it announced a plan to jointly develop carbon transport and sequestration infrastructure with TC Energy Corp. (
), Mr. Catellier raised his rating Pembina Pipeline Corp. (
) to “outperformer” from “neutral.”
“Consistent with our prior EV/EBITDA valuation, our DCF valuation includes a successful closing of the IPL acquisition at the current terms and conditions,” he said. “We have included only the $400-million of capital projects announced at the time of the offer, and none of the potential projects announced with the recent business update.”
His target for Pembina shares jumped to $47 from $39. The average on the Street is $40.44.