Incitec Pivot Ltd T.IPL

RBC Likes The Results

[hawk35]

November 8, 2018
Inter Pipeline Ltd.
First Glance: NGL processing drives strong results;
dividend increased by 1.8%
Impact: positive
 
First impression
Q3/18 results benefit from strong NGL processing margins. Q3/18
ACFFO/share was $0.68 compared to our forecast of $0.57 and $0.64 in
Q3/17. EBITDA in Q3/18 was $340 million versus our forecast of $297
million and consensus of $314 million. The variance was almost entirely
due to stronger-than-expected volumes and margins for NGL processing
(Q3/18 operating margin of $134 million versus our forecast of $91
million). While we normally do not get particularly excited by commoditybased
cash flow, we positively view the solid cash flow generation given
the company's funding needs for its Heartland project. Please see Exhibit
1 on page 2 for a table showing the Q3/18 results versus our forecast.
 
Heartland construction continues to make progress. During the quarter,
$172 million was spent ($827 million total spending to date) for the $3.5
billion project that is expected to come into service in late 2021. Inter
Pipeline continues to expect to spend $700 million on the project in 2018.
 
Signalling the potential to turn off the premium component of the
DRIP. Given the strong financial performance to date and assuming
continued solid cash flow generation, Inter Pipeline stated that it could
be in a position to suspend the premium component of the dividend
reinvestment plan by the end of 2019.
 
Dividend increased by 1.8% to a new annualized rate of $1.71/share
(up from $1.68/share). The timing of the increase is in-line with our
expectations although we had anticipated a slightly higher increase (i.e., to
$1.74/share). However, given the funding that needs to be accomplished
for Heartland, we would not read much into the slightly lower-thanexpected
dividend increase.
 
Bulking up in European liquids storage. Recently, Inter Pipeline agreed
to acquire NuStar Europe, a bulk liquid storage business for cash
consideration of US$270 million (approximately C$354 million), with the
transaction expected to close in Q4/18. Inter Pipeline expects the acquired
business to generate approximately $40 million in average annual EBITDA
over the next several years, implying a purchase price multiple of 8.9x
forecast EBITDA. To help finance the acquisition, Inter Pipeline issued
9.62 million shares at a price of $20.80/share, for total proceeds of
approximately $200 million. The remainder of the purchase price of
roughly $354 million will be financed with its revolving credit facility.
Conference call: Friday, November 9 at 11:00 AM (ET). The dial-in number
is [phone] (conference ID: 8096607).