TD Resumes and Raises TP Event
We are resuming coverage on Pembina Pipeline Corp. (PPL) following the
termination of an agreement between the company and Inter Pipeline Ltd. (IPL).
While we were restricted, Pembina reported Q2/21 AFFO of $0.98.
Impact: MIXED
Background: On May 31, 2021, PPL and IPL entered into an agreement where
PPL would acquire all issued and outstanding IPL common shares in exchange
for 0.5 of a common share of PPL.
On July 15, 2021, an affiliate of Brookfield Infrastructure Partners L.P., revised
its competing offer to $20.00 in cash or 0.25 of a Brookfield Infrastructure
Corporation class A shares for each IPL share. The updated all-share
component of the offer was $0.94 higher per IPL share than the Pembina offer
for the company.
On July 16, 2021, Pembina announced that the company would not increase its
consideration for the acquisition of IPL. The company terminated the proposed
acquisition on July 26, 2021, which triggered a $350mm termination fee from
IPL.
Capital Discipline: Although the combination of both companies showed strong
strategic and industrial logic, we believe that PPL effectively demonstrated its
capital discipline by resisting to increase or otherwise change the consideration
that was initially offered per the arrangement agreement.
Updating Our Financial Forecasts and Target Price: We have updated our
financial forecasts and target price to reflect a number of factors, including rolling
forward our target price by half a year to be half based on our 2023 forecasts, the
plan to develop the Alberta Carbon Grid with TC Energy Corporation, the Cedar
LNG Project, and the outlook for the Alliance Pipeline.
TD Investment Conclusion
PPL's operations are well-positioned to capture growing volumes in WCSB and
should provide opportunities to invest in value chain extension and expansions into
new markets. In our view, PPL's proposed carbon transportation and storage project
with TC Energy leverages the company's well-positioned asset base, expertise, and
extensive stakeholder relationships. We also believe that PPL's proposed market
access and carbon storage initiatives demonstrate the company's ability to pivot
towards a lower carbon energy future.
Recommendation: BUY
Risk: MEDIUM
12-Month Target Price: C$43.00 Prior: C$41.00
12-Month Dividend (Est.): C$2.62
12-Month Total Return: 17.1%