Some positive views on KEY/PPL/GIBFrom the globe and Mail Analysts/upgrades/down grades
Wednesday’s analyst upgrades and downgrades
Emphasizing “capital discipline is the new mantra for oil and gas development,” Raymond James analyst Michael Shaw resumed coverage of a trio of Canadian midstream companies on Wednesday. “We see no reason to believe producers will backslide into old habits,” he said in a research note. " But producer capital disciple does not imply zero volume or capacity growth for midstreams. On the contrary, well-located midstream assets will continue to benefit from additional capital deployments. The Montney/Deep Basin in particular should see steady growth supported by the premium on Canadian condensate and the need to fill newly constructed LNG facilities. What producer capital discipline does imply is more measured production growth, which will need to be match by similarly measured growth from midstream providers.”
“E&P capital discipline implies a risk that midstreams might step-out beyond their traditional growth areas to investments where they might not have particular competitive advantages. While each project will need to be assessed on its own merit, the risks associated stepping beyond core competencies can be high. Our preference will be toward companies with opportunities that fit within existing footprints and can be managed with disciplined growth capital.”
Citing its long-term differentiated growth platform within the Alberta and B.C. Montney region, Mr. Shaw gave Keyera Corp. (
) an “outperform” rating with a $33.50 target. The average target on the Street is $34.50.
“Keyera stands out by virtue of its differentiated growth outlook versus the rest of the Canadian midstream space,” he said. “The completion of the KAPS pipeline will provide a platform for Keyera to pursue bolt on projects in the prolific Alberta and BC Montney.
“While KAPS does provide long-term growth opportunities, in the short-term there are questions and hurdles related to the project, including contracting the pipeline, the risk of cost inflation, and debt ratios that will move higher during construction.”
Mr. Shaw also gave Gibson Energy Inc. (
) an “outperform” recommendation “based on its brownfield growth portfolio plus the potential for above average shareholder returns through dividend growth and share buybacks.”
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His target is $25, matching the consensus on the Street.
“We highly expect Gibson will be positioned to increase its dividend in 2022 - likely again with 1Q results - as the dividend growth keeps pace with infrastructure cash flow following the completion of the DRU in 2021, the biofuels project, and tank adds,” he said. “Moreover, there is also the possibility for share buybacks. GEI has been approved for an NCIB and will use the NCIB to ensure it fully deploys its $200-million budget.”
The analyst started Pembina Pipeline Corp. (
) with a “market perform” rating and $43.50 target. The average is $42.36.
“The ongoing difficulties with Ruby are not new for Pembina and its investors,” he said. “Natural gas spreads between Malin and Opal have structurally impaired Ruby and created significant uncertainty on the outlook for the pipeline. Pembina fully wrote down Ruby at the end of 2020 and eliminated equity distributions from the pipeline, but Ruby still represented 5 per cent of adj. EBITDA in the 1H21 and likely remains part of the forward outlook.
“The ultimate obligation on Ruby remains uncertain. Part of the capacity is contracted until 2026 but Pembina is in ongoing conversations with partners on a resolution to the debt in Ruby due 2022.”
Keyara GIB and PPL are a very good dividend yield and own KEY/PPL