RE:TRP - #1 Top Pick on BNN Market Call - Brian Madden TC Energy (TRP TSX)
TC Energy is one of North America’s largest energy infrastructure companies, moving 25 per cent of the continent’s natural gas flows across Canada, the U.S. and Mexico. The company is a high-quality, predictable cash flow and dividend grower with 90 per cent of the business operating under a regulated return framework or under long-term toll contracts. With the commissioning of the LNG Canada export terminal next year, the business should start to reap the rewards from its stake in the Coastal Gas Link pipeline, and similarly next year should benefit from the commissioning of its Southeast Gateway offshore gas pipeline in Mexico. The shares trade at a meagre 12.5 times earnings and offer a generous yield of 7.4 per cent with a dividend that we expect will grow three to five per cent per year. The major transformational catalyst ahead is the spin-off of South Bow next month, which will separate the oil pipelines segment from the remaining business units, likely unlocking value as shares of the two separate companies finally migrate into the hands of their natural owners. The retained gas and nuclear/renewable energy segments within TC Energy will be purged of the ESG-unfriendly oil pipelines, with attendant upward re-rating potential and South Bow will freed from the larger entity and purely focused on maximizing cash flows from its mature and irreplaceable oil pipelines – a potentially compelling appeal to ESG-agnostic investors.