Scotia Bank Take On AltagasMoving Target Price Up on Better-than-Expected Guidance OUR TAKE: Positive. We and the market (shares up 4%) like AltaGas' 2021 guidance. Returns and cash flow from its utility business are improving faster than expected, which is the key driver of our higher 2021 and 2022 estimates. The more commodity-exposed midstream business will face some headwinds in 2021, however we note that this business warrants a lower multiple than the utility business. Our target price increases $2 to $22 to reflect the increased utility income. At 12.9% 2021E free cash flow yield, AltaGas is trading like a midstream company, and at a discount (its peers are trading at an average of 11.8%). At 12.3x 2021E P/E, we view AltaGas as a way for investors to get exposure to high-growth utility assets at a discounted valuation (the other Canadian utilities are trading in the 18x-21x range). AltaGas remains our favourite utility name. KEY POINTS Utilities drive a stronger-than-expected 2021. We move up our 2021 EPS estimate by $0.09 to $1.52, which is slightly ahead of the midpoint of AltaGas' $1.45-$1.55 guidance range. Our 2022 estimate increases by the same amount. Driving the increase are: (1) stronger-than-expected utility returns; (2) recent refinancing at attractive rates; and (3) a lower tax rate. We see the utility segment benefiting from high-single-digit rate base growth and an improving ROE (130-150 bp improvement expected in 2021). Partially offsetting this would be softer-than-expected Midstream growth and higher Corporate costs. Within Midstream, the incremental contribution from Petrogas and 20% growth in its Northeast B.C. assets are expected to be offset by lower Gordondale income due to a fee reduction negotiated a few years ago, as well as weaker commodity margins. Overall we are seeing an improved outlook on AltaGas' highest valuation multiple business and some headwinds on its lower multiple businesses