Citi Bumps TP In a separate report, Mr. Dounis lifted his valuation for Pembina Pipeline Corp. (PPL-T +0.30%increase
) to reflect the “ripple effect” from recently announced commercial success, including a 50,000 barrels per day ethane supply and transport agreement with Dow Chemical Canada and incremental Nipisi Pipeline contracts.
“Another capex reduction on Peace [Pipeline] Phase VIII expansion also positively impacts our valuation,” he said. “The 50kbpd ethane agreement could lead to a suite of low cost expansion projects at Empress, RFS III, and Alliance in order to extract more ethane. AEGS [Alberta Ethane Gathering System] and the Vantage pipeline benefit from additional volumes with an expansion opportunity on AEGS to fully supply the cracker (even from third party sources). The ethylene cracker (commencing in ‘27) could require over 100kbpd of ethane feedstock once fully operational in ‘29. Incremental ethane supply likely means more C3+ supply, which could catalyze low cost expansions on the Peace Pipeline where we believe more than 20 per cent of capacity could be added through a combination of optimization and low-cost pump station additions.”
The analyst maintained his near-term estimates for Pembina, but he increased his EBITDA expectations for 2025 through 2028 to “reflect the newly announced commercial agreements and potential for a suite of incremental low-cost, high-return opportunities to emerge as a result.”
“Our estimates imply a 7-per-cent EBITDA CAGR [compound annual growth rate] between ‘23-’28 on the fee-based business, consistent with the prior 5-year CAGR of 6 per cent but below the company’s 10-per-cent, 10-year EBITDA per share CAGR,” said Mr. Dounis. “We estimate an annual average FCF yield of 9 per cent through ‘28 and more than 50 per cent of CFO being returned to investors largely via the dividend (5-per-cent CAGR through ‘28).”
With a “neutral” recommendation (unchanged), he moved his target to $50 from $47. The average is
“PPL boasts a growth backlog of high-quality and low-carbon projects; however, the company already trades at a premium to peers and likely reflects most of these positive attributes,” said Mr. Dounis. “PPL offers investors a unique dual track: a low-risk growing base business and one of the most holistic approaches to low-carbon growth among our coverage. PPL’s base business take-or-pay earnings profile bests its peers. Its growth backlog of low-carbon projects also stands out.”