TD Take & Bumped TP Event
AltaGas Ltd. (ALA) Q4/21 AFFO/share of $0.75 was below our estimate of $0.77 and
Q4/20 AFFO/share of $1.03. ALA reported Q4/21 normalized EBITDA of $341mm,
which was below recent consensus of $388mm, Q4/20 normalized EBITDA of
$392mm, and our estimate of $374mm.
Impact: MIXED
Q4/21 Results: Q4/21 results were below our estimates, driven by weaker-thanexpected operational results, partially offset by lower maintenance capital than
what we had modelled. Utilities segment results were affected by lower margins at
WGL's retail marketing business, a weaker U.S. dollar, and higher G&A expenses.
Lower-than-expected Midstream segment results were driven by the cessation of
AFUDC related to Mountain Valley Pipeline (MVP), the absence of contributions
from the WGL Midstream commodity business, hedging losses, and lower frac
spreads.
MVP Write-down and Select Asset Sales: The MVP has been written down
to be in line with ALA's US$352mm cost cap, resulting in a $209mm after-tax
($271mm pre-tax) provision on its equity investments in the project. In Q1/22, ALA
agreed to sell an interest in certain midstream processing facilities for $234mm to
a customer, as well as a 70MW combined-cycle power plant in Brush, Colorado,
and closed the sale of a 60MW energy storage development project in Goleta,
California for ~US$15mm.
Financial Forecasts Updated: We have updated our model for the current
quarter, along with making a few small adjustments, including higher maintenance
activity in 2022. Our updated outlook results in our target price increasing by two
dollars to $32.00.
TD Investment Conclusion
Although ALA's operations experienced some temporary headwinds in Q4/21,
looking forward, we believe the fundamental industry outlook has improved since
the company's December 2021 investor day. Exporting LPG off the west coast of
North America is the cornerstone of a differentiated midstream offering to WCSB
producers, in our view, facilitating synergies across facilities and potential expansion
in the long term. The utility segment appears to have a relatively high medium-term
rate-base growth outlook when compared with its peers. In our view, the company
is providing a diversified energy infrastructure investment opportunity for investors
with a medium risk tolerance looking for above-utility-average potential returns.
Recommendation: BUY
Risk: MEDIUM
12-Month Target Price: C$32.00 Prior: C$30.00
12-Month Dividend (Est.): C$1.06
12-Month Total Return: 16.7%