116613N wrote: Here are a few highlights from Robert Kwan, RBC Research report, published October 31:
We introduce 2018, 2019, and 2020 AFFO/share estimates of $1.79, $2.23, and $2.55,
respectively.
Numerous changes to our financial forecast
The following highlights some of the key changes to our financial forecast, as further detailed
in Exhibit 5.
Dividend – forecasting a cut: For 2019 and 2020, we now forecast a dividend of
$1.32/share, which is a reduction from the current $2.19/share annualized dividend. We
selected our forecast dividend based on evaluating the payout ratios on both an AFFO
basis and an EPS basis....
Valuation: Reducing our price target to $20.00 (from $28.00)
Our new price target is based on a revised sum-of-the-parts projection one-year out of
$18.00-23.00/share. Our revised analysis takes into account recent M&A valuations (e.g., San
Joaquin), pressure on midstream sector valuations, and changes in our financial forecast.
In terms of bridging some of the major drivers behind the $8/share reduction in our price
target, we note the following factors that make up the majority of the variance:
The San Joaquin sale at an estimated 4.0–4.5x EBITDA was roughly 2–3x below our prior
valuation and has also resulted in a reduction in our valuation for the Blythe power plant
in California (about $1.50–2.00/share combined for San Joaquin and Blythe);
The debt balance at WGL was roughly $500 million higher than we had forecast (almost
$2/share); and
Gas midstream valuations have declined for many of AltaGas’s peers and we are now
using a roughly 1–1.5x lower EV/EBITDA multiple (almost $2/share).