RBC Comments tonight
August 8, 2019
Inter Pipeline Ltd.
First Glance: Lots of news...and by the way, IPL
also reported Q2 results
Impact: positive
First impression
Exploring the sale of its European bulk liquid storage business. Inter
Pipeline announced that it is exploring the potential sale to reduce debt
and help finance its capital expenditure program, including the Heartland
Petrochemical Complex (HPC). The assets include 37 million barrels of
storage across 23 terminals in the U.K., Denmark, Sweden, Germany,
the Netherlands and Ireland. We believe that funding has been a major
overhang for the shares and we would view a sale positively, particularly
if it allows the company to turn off its DRIP.
Potential takeover bid? An unsubstantiated report in The Globe & Mail
citing "sources familiar with the situation" stated that a "credible" bidder
approached Inter Pipeline with a $30/share offer "in recent weeks".
Apparently, the offer "was not received enthusiastically". We expect this
topic to come up in the Q&A portion of the Q2/19 conference call. For our
thoughts on the article, please click here.
Results will probably take a back seat this quarter. In Q2/19, ACFFO/share
was $0.51 compared to our forecast of $0.56 and $0.61 in Q2/18. The
variance was primarily due to modestly lower-than-expected EBITDA of
$284 million versus our estimate of $298 million, although the quarterly
result was very close to consensus of $282 million (13 estimates; range
of $270-298 million). The EBITDA variance compared to our estimate was
largely due to NGL Processing ($18 below our forecast), although we
note a strong performance from Conventional oil pipelines with operating
margin of $51 million versus our forecast of $42 million and $34 million
in Q1/19.
Viking Connector pipeline sanctioned. Earlier this week, Inter Pipeline
announced that it received commercial support for a $100 million
pipeline connection between its Bow River and Central Alberta pipeline
systems. Construction will begin immediately and is expected to be
completed in H1/20. Approximately one-third of the forecast shipments
of 10,000-15,000 b/d are currently secured for a 10-year term, while
additional term agreements are under negotiation.
Conference call: Friday, August 9 at 11:00 AM (ET). The dial-in number
is (888) 231-8191 (conference ID: 6363009). Topics that we expect to
be covered on the conference call include The Globe & Mail article, the
potential sale of the European bulk liquid storage business and what it
means for capital allocation and funding, progress at Heartland and the
outlook for frac spreads and midstream marketing margins.
Disseminated: