Keyera Corp T.KEY

Buy Rating Maintained - Target Price of $34

[Ariahp]

Keyera Buy Rating Maintained at TPH Even as Weak Third-Quarter Results Expected

 

07 Oct 202111:28 ET

 

11:28 AM EDT, 10/07/2021 (MT Newswires) -- Tudor, Pickering and Holt on Thursday reiterated its buy rating on the shares of Keyera (KEY.TO) with a C$34.00 target price ahead of what it expects will be weak third-quarter results for the Western Canadian petroleum pipeline and processing company.

"We are modelling a significant Q3 EBITDA miss of C$220mm (-10% vs Street) that requires some explanation as we expect sell-side numbers will track down heading into the quarter due to: 1) Iso-octane sales in-transit that will be realized in Q4 translating to weaker Marketing margins q/q, 2) Marketing is largely hedged on the prompt quarter (TPHe 80%) which should limit Q3 upside from the dramatic rise in commodity pricing, 3) G&P will be down ~C$10mm due to plant maintenance, and 4) Modestly weaker fractionated ethane volumes due to the PAA fire and corresponding AEGS interruption. In addition, our capex forecast increased by C$70mm due to non-project related spend and higher than expected AEF turnround costs (Q4'22)," analyst Matt Taylor said in a note. "Overall, lower earnings and higher capex is not a great recipe for equity performance as investor sensitivity on capital allocation priorities remains heightened. However, we think bearishness should be transitory as unhedged commodity exposure (NGLs and RBOB) and realization of deferred iso-octane sales could translate into very strong performance in Q4/Q1. We model 2021 Marketing coming in well ahead of guidance at C$332mm (vs C$260-290mm) and, if pricing holds, Q1 could print about half of anticipated guidance for 2022. Leverage to increased commodity prices translating to strong earnings and sustained volumes have us maintaining the Buy rating despite an expected weak Q3."