Incitec Pivot Ltd T.IPL

TD Waterhouse Comments Today

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Inter Pipeline Ltd.
(IPL-T) C$5.84

IPL Provides Update on Business and Financial Strength
Linda Ezergailis, P.Eng.
Max Peters, CA, (Associate)
 
Event
IPL provided an update on its business.
Impact: SLIGHTLY POSITIVE
 
Counterparties and Contract Profile: Management provided an update on
IPL's counterparties, noting that ~80% of revenue comes from investment grade
customers. The company also has various other securities to protect cash flows
including letters of credit, prepayments, and parental guarantees. ~80% of IPL's
2019 EBITDA was underpinned by cost-of-service and fee-based agreements.
While we expect producer customer credit ratings to deteriorate, we note that IPL's
counterparty exposure was recently relatively strong.
 
2020 EBITDA: IPL's Oil Sands Pipelines, Conventional Pipelines, and Bulk
Storage are expected to contribute EBITDA in the range of $780 million-$810
million in 2020 (assuming normal operations). We note that IPL's Oil Sands
business (55% 2019 EBITDA) is the most stable segment, and is typically
insulated from volume or commodity price volatility.
 
Modest Capex Reduction: With the bulk of IPL's capital program dedicated
to the Heartland Petrochemical Complex (HPC), management has scaled back
2020 discretionary capex by $60 million-$120 million. HPC continues with
construction, and IPL is working with the government to address potential
COVID-19 transmission concerns.
 
Update Pending on Bulk Storage Sale Progress: IPL expects to be able to
update the market on the process to sell its European Bulk Storage business in
a few weeks. Proceeds from a potential partial or full sale of the business would
be used to deleverage and fund the capital program.
 
All Options Likely on Table Including Dividend Level: We thought IPL might
be in a position to address the dividend level and outlook given its current yield,
but appreciate that this might be part of a bigger shift in financing plans following
the update on the European Bulk Storage business. As a reminder, based on
projected proceeds from a full sale of the segment, IPL had previously estimated
that they would be in a position to discontinue the DRIP, which at recent share
prices, we think should be a priority to eliminate. Bringing in an equity partner
for HPC could become a more compelling financing option in this volatile capital
market environment, although could take some time to implement.