TC Energy Corp T.TRP.PR.E

From RBC

[Al42]

EQUITY RESEARCH
February 19, 2024
TC Energy Corporation
A clearly defined set of priorities
Our view: TC Energy continues to build investor confidence coming out
of what increasingly appears to be a low-point in August 2023. While by
no means out of the woods, execution of the Southeast Gateway Pipeline
(SGP) construction appears to be tracking well (in contrast to how Coastal
GasLink unfolded), and improving macro conditions bode well for the asset
sale program. Relative to other Canadian energy infrastructure companies
that face execution challenges, we believe TC Energy has one of the more
favourable risk-reward profiles given its discounted P/E valuation, progress
to-date on SGP construction, and relative deleveraging flexibility.
Key points:
Multiple asset sales processes underway with potentially one
announcement in H1/24. TC Energy highlighted that there are "many"
conversations going on related to its asset sale program, adding that there
is competition within and between the ongoing processes. Subject to
receiving "compelling" valuations, the company is also open to considering
sales that exceed its base $3 billion program that could consist of 2-4
transactions.
Good progress on the Southeast Gateway Pipeline (SGP) should be
viewed favourably by investors. Given the delays and significant cost
overruns for the now mechanically complete Coastal GasLink pipeline
project, we believe that investors will favourably view the execution to-date
for SGP. The project continues to progress on-time and on-budget (US$4.5
billion), with the company tracking to reach mechanical completion by the
end of 2024 and achieve commercial in-service by mid-2025.
2024 EBITDA guidance reaffirmed. Inclusive of Liquids Pipelines, TC Energy
continues to expect EBITDA to be $11.2-11.5 billion (we are at $11.360
billion), while introducing its forecast for EPS to be "lower" year-over-year,
which we do not view as surprising given the roughly $0.15/share CGL
incentive payment from LNG Canada that was booked in Q4/23 (relative to
the $4.52 EPS in 2023, our 2024 EPS remains unchanged at $4.28).
Solid Q4/23 results. In Q4/23, EBITDA was $3.107 billion, which was ahead
of our estimate of $2.848 billion and consensus of $2.809 billion, while EPS
was $1.35 versus our $1.14 estimate and consensus of $1.08. The variance
to our estimates was largely due to the booking of the $200 million (about
$0.15/share after-tax) CGL-related incentive from LNG Canada.
Continued execution should drive a valuation re-rating; price target up to
$59.00 (from $54.00). Our previous price target was based on a return to
the 15-year floor valuation prior to August 2023, and with good execution
since that time, the valuation has largely improved to the 15-year floor. We
expect the company to continue to execute on its plan and our new price
target is based on a 13.5x forward P/E (up from 12.5x), which remains well
within the lower half of the stock's 15-year range (please see Exhibit 1).
RBC Capital Markets acted as financial advisor
to TC Energy (TSE: TRP) in respect to the spin-
off of their liquids pipelines business as press
released on July 27, 2023.
RBC Dominion Securities Inc.
Robert Kwan, CFA (Analyst)
[phone], [e-mail]
Maurice Choy, CFA, CA, CPA (Analyst)
[phone], [e-mail]
Greg Andrais, CFA (Associate)
[phone], [e-mail]
Outperform
TSX: TRP; CAD 53.32; NYSE: TRP
Price Target CAD 59.00 ↑ 54.00
WHAT'S INSIDE
Rating/Risk Change Price Target Change
In-Depth Report Est. Change
Preview News Analysis
Scenario Analysis*
Downside
Scenario
42.00
14%
Current
Price
53.32
Price
Target
59.00
18%
Upside
Scenario
66.00
31%
*Implied Total Returns
Key Statistics
Shares O/S (MM): 1,037.0
Dividend: 3.84
Float (MM): 1,037.0
Market Cap (MM): 55,293
Yield: 7.2%
Avg. Daily Volume: 6,195,179
RBC Estimates
FY Dec 2022A 2023A 2024E 2025E
EPS, Adj Diluted 4.30 4.52 4.28 4.36
Prev. 4.30
P/AEPS 12.4x 11.8x 12.5x 12.2x
DPS 3.60 3.72 3.84 3.96
Div Yield 6.8% 7.0% 7.2% 7.4%
EPS, Adj Diluted Q1 Q2 Q3 Q4
2023 1.21A 0.96A 1.00A 1.35A
Prev. 1.14E
2024 1.08E 0.95E 1.06E 1.19E
All values in CAD unless otherwise noted.
Priced as of prior trading day's market close, EST (unless otherwise noted).
Disseminated: