Keyera outperforming AnalystsPart of the reason for Keyera's share price performance is the price of gas. But I looked back at RBCs comments on Q1 looking for clues to this month's strong share price performance. Possibility for outperformance is found in the report and RBC believed KEY had upside share price potential of $40.00. Looks like RBC was right.
Below is last month's Q1 response from RBC.
May 12, 2021
Keyera Corp.
High octane Marketing outlook
Our view: We believe Keyera's shares are benefitting from an improved
outlook, particularly for its Gathering & Processing and Marketing
segments, with the Liquids Infrastructure business delivering the steady
results that make it a "high multiple" collection of assets. Particularly for
investors who are bullish on gas producer volumes in Keyera's South region,
we see the shares as providing attractive upside optionality paired with
downside protection in the form of below average debt leverage (2.7x using
the covenant calculation) and a well-covered dividend.
Key points:
Revised Marketing guidance well-above our forecast; we think the longterm
"base" guidance is likely to shift higher. Keyera provided guidance
for realized Marketing margin in 2021 of $260-290 million (our estimate
heading into the quarter was $234 million). The company noted the
year-to-date performance as well as lower butane supply costs following
negotiations for NGL supply agreements for the new contract year (i.e.,
beginning on April 1, 2021) as being drivers behind 2021 guidance being
higher than the company's "base realized margin" guidance range of
$180-220 million for Marketing. Of note, Keyera stated that partly due
to the new Wildhorse and Galena Park projects, it will evaluate its "base
realized margin" range, likely at the end of the year, and we see the
potential for a revised range of $200-250 million. Although Marketing
results can be volatile, we believe the increased near-term cash flow is
valuable to help fund the multi-year construction of KAPS.
KAPS: a bit more disclosure on returns and contracting. Keyera stated that
its expected 10-15% return on invested capital for KAPS is on a stand alone
basis (i.e., it does not include upstream or downstream benefits). Further,
the guidance does not appear to depend on volumes from B.C., whether
that be from the proposed third-party Northeast B.C. Connector project or
another initiative.
Q1/21 results were in line with our street high EBITDA forecast. Adjusted
EBITDA in Q1/21 was $225 million versus our forecast of $226 million and
consensus of $216 million (12 estimates; range of $210-226 million). DCF/
share in Q1/21 was $0.75 versus our forecast of $0.73 with the variance
partly due to lower-than-expected maintenance capex (quarterly timing
that should reverse in future quarters based on guidance).
Increasing our estimates primarily to reflect a more favourable Marketing
outlook. Our new 2021 and 2022 DCF/share estimates are $3.03 and
$2.88, respectively (up from $2.80 and $2.77, respectively) with our EBITDA
forecast increasing to $938 million and $986 million, respectively (up from
$889 million and $968 million, respectively).
Valuation: increased EBITDA outlook primarily drives our new $33.00
price target (up from $29.00). Our new price target is due to our revised
2022E EBITDA as well as factoring in upside from filling the Wapiti plant
while maintaining a blended 10.5x EV/EBITDA valuation.
Valuation
Our $33.00/share price target is based on applying the 15-
year average valuation of 10.5x EBITDA to our 2022E EBITDA
estimate. Our target multiple is also consistent with a blended
contribution from Gathering & Processing (at 10x EBITDA),
Liquids Infrastructure (at 12x EBITDA), and Marketing (at 8x
EBITDA). The risk-adjusted expected total return to our price
target supports our Outperform rating for the shares.
Upside scenario
Our upside scenario of $40.00 is based on a 1x increase in EV/
EBITDA valuations, which would approximate the valuations
we were using prior to the COVID-related market downturn.
This scenario also includes roughly $3/share associated with
upside from volumes at new facilities and the development of
spare land in Fort Saskatchewan.