RE:RE:CIBC - NeutraulSounds like all the big banks are looking for additional asset sales to further debt reduction.
tradetoretire wrote: Q1 results were solid despite a headwind from lower frac spreads and RIPET was completed on time and on budget. We do not see the company achieving 5.5x leverage by the end of the year without more asset sales than envisioned, or transacting at higher multiples than the 9x we are estimating. Although the sale of a 30% interest in Stonewall appears to have been at an attractive 12x multiple, and demand for infrastructure assets is higher, the hybrid market has been slow and execution risk remains. We are maintaining our Neutral rating and $20 price target.
Implications
The company reported Q1/19 EBITDA of $466MM vs. our estimate of $471MM and consensus of $470MM. The variance in normalized FFO of $376MM vs. our estimate of $362MM was due to deferred taxes. Performance in Gas and Utilities was in line and variance in Power resulted from lower capacity factors. We see the company on track to achieve its $1.2B-$1.3B 2019 EBITDA guidance, which will include more than two quarters of contributions from RIPET.
The company passed the half-way mark of its $3B in planned debt reduction in 2019, with $1.7B paid during the quarter, but its trailing leverage is still notably higher than peers at 6.7x. Additional hybrids/preferred shares are still required to fully fund 2019 uses, as well as execution of asset sales at attractive valuation. AltaGas expects to receive $370MM from the sale of Stonewall as part of its plan to monetize $1.5B-$2.0B of non-core assets. We continue to assume all assets outside of Northeast BC and WGL as candidates for sale, and the company will have to beat our estimates to meet its 5.5x net debt/EBITDA target.
The operational highlight in the quarter was completing RIPET on time and on budget. The facility is filling with propane, with first cargoes expected in May.
What's Changed?
We have revised our estimates to account for Q1/19 results, disclosed asset sales and timing of RIPET.