IA Capital Markets analyst Matthew Weekes Views -G&M IA Capital Markets analyst Matthew Weekes is taking a “more constructive” long-term growth outlook on TSX-listed pipeline stocks after the Alberta government approved six proposals to develop carbon transportation and storage hubs in the industrial heartland region near Edmonton on Friday.
Moving from his previous “hold” rating for the sector, Mr. Weekes now sees the potential for significant growth “amidst the strong market momentum.”
“The provincial government in Alberta has historically been supportive of carbon capture, utilization and storage (CCUS) development, and the federal government has recently expressed its commitment to developing Canada’s CCUS strategy as part of the country’s goals to lower GHG emissions,” he said in a research note. “This will include a CCUS tax credit, which we should receive more details on this week with the federal budget review. While there are still further stages before construction, and these projects have multi-year development horizons, we are constructive on developments in CCUS as having the potential to provide new revenue streams and expansion opportunities for Pipeline companies over the long term, supplementing growth in the core, traditional asset bases.”
Mr. Weekes thinks government assistance should help ensure that these projects provide “reasonable economics and a rate of return for private sector investors.”
“The companies have stated that projects could be in service as early as 2025,” he added. “While initial buildouts of these transportation and storage systems will likely provide a modest boost to EBITDA for these companies compared to investments in the core, traditional asset bases, over time, these investments will have the opportunity to be scaled up to reach new regions and tie in more emitters, which could be either existing facilities adding carbon capture technology or new ones built with a low-carbon.”
With his new view on the sector leading to increased terminal growth rate forecasts, he also raised his target for Enbridge Inc. (
, “hold”) to $59 from $57. The average is $56.57.