RE:TD Waterhouse Commentshawk35 wrote:
TDW maintains buy rating and $22.00 target price.
AltaGas Ltd.
(ALA-T) C$17.68
Q4/18 Results; Guidance for 2019 Reaffirmed
Event
AltaGas Ltd. (ALA) reported Q4/18 AFFO/share of $0.92, above our estimate of
$0.81, and Q4/17 AFFO/share of $0.88.
Impact: NEUTRAL
Q4/18 Results: ALA's normalized EBITDA of $394 million was below our estimate
of $418 million for Q4/18. ALA's results were above our expectations, driven by
lower-than-expected interest expense and other non-operational items.
2019 Guidance Reaffirmed: ALA reaffirmed its guidance for 2019, which was
introduced during the financial and operational outlook provided by the company
in December 2018. Part of this guidance includes a $1.2 billion-$1.3 billion range
for normalized EBITDA and normalized FFO of $850 million-$950 million in 2019.
In addition, ALA expects to have a capital program of $1.3 billion in 2019, which
will be largely focused on its Midstream and Utilities segments. Management
continues to evaluate potential asset sales, which are expected to form a portion
of the funding plan for 2019 in the range of $1.5 billion-$2.0 billion.
Financial Forecasts Updated, Target Price Unchanged: We have updated our
model for the current quarter and made a number of other small changes. We
have also rolled forward our target price derivation by a quarter to be fully based
off our 2020 estimates and when combined with the modest adjustments to our
outlook and forecasts, our target price remains unchanged at C$22.00.
TD Investment Conclusion
We believe that the recent information provided with respect to updated financing
plans, target credit metrics, dividend level reset, and 2019 guidance was positive,
although the company must still execute its asset sales. The new CEO is likely to
continue to refocus on ALA's core businesses and seek further efficiencies. With the
dividend-cut announced and a visible path to strengthening the balance sheet, we
expect the stock to re-rate upwards over the next year.
Outlook
Q1/19 Preview: We are forecasting Q1/19 AFFO/share of $1.23, above the Q1/18
normalized AFFO/share of $0.81. We expect the increase to be largely a result of a
seasonably strong contribution from WGL, for which the acquisition closed in July 2018.
This could be partially offset by the combination of an increased share count, interest
expense, and amortization.
Key Risks to Target Price
Key risks to target price include 1) higher-than-expected long-bond yields; 2)
acquisitions and dispositions that do not create shareholder value; 3) operational
disruptions; 4) commodity price risk; 5) unanticipated changes to environmental laws
and regulations; 6) regulatory surprises; 7) WCSB risk; 8) dividend level; 9) execution of
construction projects; 10) access to capital markets; 11) counterparty risk; and 12)
relatively high financial leverage.