Scotia Bank Take On AltagasAltaGas Ltd. Moving Up Guidance Is a Nice Start to the Year OUR TAKE: Positive. AltaGas' midstream assets performed significantly better than forecast in Q1/21 given favourable marketing opportunities and better volumes. Its core utility assets performed as expected and longer term we continue to view them as a key growth driver. The company increased its 2021 guidance, which we had expected. The guidance increase is all the more impressive given that the company stopped recording AFUDC income on the Mountain Valley Pipeline in 2021, which was previously in our estimates. At 12.8% 2023E free cash flow yield, AltaGas is trading like a midstream company (in fact, at a discount to its midstream peers, which are trading at an average of 12.5%). At 12.4x 2023E P/E, we view AltaGas as a way for investors to get exposure to highgrowth utility assets at a discounted valuation (the other Canadian utilities are trading in the 17x-20x range). While some had been concerned about valuation compression of gas utilities, we note that the announcement that Centerpoint is selling a small gas utility at a 38x 2020 PE and 2.5x rate base would be contrary to this. KEY POINTS Moving 2021 guidance up as expected. Management increased its 2021 guidance to reflect the windfall natural gas margins earned in Q1/21 and various other tailwinds in the business. EBITDA guidance for 2021 increases to $1,475m-$1,525m from $1,400m- $1,500m previously (Exhibit 1). EPS guidance increases to $1.65-$1.80 from $1.45- $1.55 previously. At the mid-point this represents a 3% / 15% increase in guidance for EBITDA / EPS. Our EBITDA estimate of $1,511m is slightly above the mid-point of the new range (consensus of $1,489m). Our $1.75 EPS estimate is around the midpoint of the new range (consensus of $1.56). There have been a number of moving parts in guidance since it was announced in December. In terms of tailwinds: 1) in Q1 it recorded $80m of windfall profits from the recently sold U.S. storage and transportation business (link); 2) propane / butane export margins and fractionation spreads are better than anticipated; and 3) stronger-than-expected volumes. We assume the company will further lock in its NGL exposure for the rest of 2021 and into 2022. This favourable pricing environment should be supportive of higher volumes moving forward. A stronger Canadian dollar is a ~$40m headwind to EBITDA, but less of an impact on income given U.S.-denominated debt (which we had expected). Also, the company has stopped recording non-cash AFUDC income on its Mountain Valley Pipeline (MVP) as of 2021, which is a ~$40m hit to EBITDA (which was previously in our estimates). Our estimates doe not move given we had expected a bump to guidance given the various tailwinds (Exhibit 5). Management noted that the company could be at the upper end of guidance if NGL pricing remains strong.