TD and Scotia on Entropy
TD:
Entropy announced that it now has MOUs totaling up to 3 MTPA which includes up to $1.5 bln of potential investment (excluding any further potential upside from the Brookfield agreement). The company also highlighted that it has now signed an LOI with Athabasca Oil Corp. for the Leismer project further advancing the stage of these discussions. Based on all potential projects ramping up to 3.0 MTPA by 2026, a blended capital cost of ~$500/t (total capex: $1.5bln) and opex of ~$17.50/t, we estimate the project at Glacier and the MOUs signed to-date could equate to a TD-estimated NPV10% of $1.2 bln, with 2030E FCF of ~$400 million (at $170/t carbon). Based on AAV's current share price, if we back out our current assumed valuation of Entropy ($270 million net) and AAV's gas plants and other assets ($445 million), we estimate the upstream business is trading at only 2.5x EV/DACF assuming strip pricing.
Scotia:
OUR TAKE: Positive. We view the Entropy Inc. (Entropy) / Brookfield Renewable Partners LP (BEP-N; SO; US$42 TP) financing as a positive for AAV. The deal provides both a clear line of sight for Entropy's near-term financing needs and a valuation marker for AAV’s ownership interest in Entropy. Looking ahead, we see 1) results from the Glacier Phase 1 project and 2) further firm project agreements as key catalysts for Entropy. We maintain our Sector Outperform rating for AAV and are increasing our Target Price to $13/share with the addition of risked market value for Entropy to our Sum of the Assets NAV (~$135M / 50% of the $270M implied value).