Canaccord Canaccord Genuity
December 12, 2016
Raising Target Price
IPL acquires remaining interest in Cold Lake
system, announces new pipeline connection;
increasing price target to C$31.00 from
C$30.50, maintain BUY
Before market hours, Inter Pipeline announced that it has entered into an agreement
to acquire Canadian Natural Resources Limited's (CNQ:TSX|Not Rated) 15% interest in
the Cold Lake pipeline system for $527.5 million and agreed to construct a new pipeline
connection. The transaction is expected to close before the end of the year subject to
closing conditions.
Cold Lake 15% Interest Acquisition
IPL is expected to acquire CNQ’s 15% in the Cold Lake pipeline system through a
payment of $350 million in cash and the issuance of ~6.4M common shares to CNQ
reflecting total proceeds of ~$177.5 million.
• Cash consideration of $350 million is expected to be funded from proceeds from a
new term debt offering that is expected to be completed prior to closing.
• The acquisition of the 15% interest in the Cold Lake pipeline system is expected
to contribute ~$35-45 million to annual EBITDA and is expected to be immediately
accretive to IPL’s FFOPS.
Kirby North Production Facility Connection
Upon closing of the Cold Lake acquisition, IPL is expected to construct a new $125.0
million pipeline connection to the Kirby North production facility, with an in-service date
expected to be in Q1/2020.
• IPL is expected to enter into a take-or-pay transportation service agreement with CNQ.
• We estimate the Kirby North Production facility connection to contribute ~$21.5 million
in annual EBITDA suggesting a multiple in the range of ~5.5x to 6.0x.
Valuation
We are increasing our price target to C$31.00 from C$30.50 to reflect the additional
expected contribution from the acquired 15% interest in the Cold Lake Pipeline System.
Our C$31.00 price target reflects 13.9x our raised 2018E EBITDA outlook. Inter Pipeline
is currently trading at 13.6x our 2017E EBITDA, below peers at 14.0x (12.0x- 15.0x).
PS: As of December 16, IPL's acquisition of remaining15% interset has already closed.