RE:BMO analyst updateCIBC moved target price from $21 to $22
CanSiamCyp wrote: ALA-TSX
Rating: Outperform
Price: Dec-9 $19.15
Target: $24.00
Total Rtn: 31%
2021 Guidance in Line and 4% Divvy Increase; Target to $24 from $23
Bottom Line: ALA's 2021 guidance and 4% dividend increase highlights the on-going success of its 24- month transformation into a more stable, high-growth energy infrastructure company with improved balance sheet trends. The 12%/20% expected 2021 YoY increase in EBITDA/EPS is above the majority of companies in our coverage universe; yet, the shares still trade at an unwarranted discount (~13x 2022E P/E vs utility at ~18.5x and pipelines at ~13.5x). As such, we are maintaining our Outperform rating and boosting our target to $24 (vs. $23) implying potential total return of 31%.
Key Points
2021 guidance initiated. 1) ALA initiated 2021 EPS guidance of $1.45-1.55, with the mid-point $1.50 in line with consensus $1.49 and above our prior $1.41 (20% YoY growth expected). 2) 2021E EBITDA is expected in the range of $1,400-1,500M compared with consensus of $1,491M and BMO's prior $1,482M. This represents 12% YoY growth and is supported by the Petrogas acquisition ($200M EBITDA) closing expected 2020 YE (has received approvals under the Competition Act and the Canada Transportation Act), utility rate base growth (8% CAGR through 2025) and higher realized utility returns (130-150bps uplift planned by YE). About 57% of 2021E EBITDA is expected from utility and 42% from midstream. 3) On 2021E capex, ALA plans to spend $910M (vs. our prior $870M and consensus of $953M), with ~82% allocated to Utility and ~16% in Midstream with no expectation to issue equity. Reducing leverage to below 5x debt/EBITDA over the medium-term remains a top priority.
Raises dividend 4%. ALA announced a 4% dividend increase (vs. consensus expectation of 1%) resulting in a monthly dividend of $0.0833/sh (from $0.08/sh), effective January 2021 and signaled that further annual dividend increases should be expected. This is the first dividend increase since 2017 and follows a 56% reduction in late 2018, further underscoring the success of ALA's strategic transformation over the last 18-24 months that has repositioned the company with durable cash flows, consistent earnings growth, and an improved balance sheet. The new dividend equates to a pro-forma 5.2% yield and healthy 2021E payout ratio of ~67% on EPS.
Revised estimates. We have updated our estimates to reflect 2021 guidance. Our 2020 estimates are unchanged at EBITDA of $1,314M (EPS at $1.34), 2021 moves to $1,460M (vs. $1,482M), EPS to $1.50 (vs. $1.41) and 2022 to $1,479M (vs. $1,498M), EPS to $1.49 (vs. $1.38).