RE:RBC Comments
Here are RBC's full comments.
June 8, 2022
Pembina Pipeline Corporation
Highlights from the RBC Global Energy, Power and Infrastructure Conference
Our view: We hosted a breakout session with Scott Burrrows (CEO) and in our view, the greatest takeaway from the session is that the business remains very well-positioned to capitalize on the high commodity price environment, both directly (i.e., Marketing margins) as well as indirectly from higher producer volumes, recontracting activity for its existing assets, and expansion projects underpinned by long-term, take-or-pay contracts to accommodate increased customer demand. Pembina's shares are rated Outperform.
Three key highlights from our session
Management remains confident in its positive outlook. Pembina continues to have an upbeat outlook for its business, which was tangibly demonstrated last month when the company reported strong Q1/22 results and increased its 2022 EBITDA guidance range. Specifically, management noted in our session the "extremely positive" macro environment across all three commodities (i.e., oil, gas and NGLs), and the company has seen solid growth in volumes through its pipelines, processing facilities and terminals, along with recontracting activity on its assets (e.g., the Alliance Pipeline). Further, the company is directly benefitting from high commodity prices, which help its Marketing segment.
Solid capital allocation framework, particularly when compared to its Canadian peers. Especially with its increased EBITDA guidance as well as our forecast accretion from the pending joint venture with KKR, Pembina should continue to generate true free cash flow (i.e., after dividend payments and all capex) in 2022 and likely into 2023, which leaves available capital to repurchase shares and/or further reduce leverage. The company remains committed to its share buyback program ($200 million base plan plus $150 million following the close of the joint venture with KKR).
Well-positioned for additional growth. On top of completed projects that should contribute to increased EBITDA and cash flow into 2023, Pembina is also poised to generate growth from the utilization of spare capacity in its system to accommodate higher producer volumes, the recently sanctioned Phase VIII conventional pipeline expansion, and potential synergies from its pending gas processing joint venture with KKR. The company also has a number of potential projects that lever off of its footprint, including an NGL fractionator expansion (i.e., RFS IV) with Pembina currently working to complete its initial cost estimate so that it could be in a position to move forward if there is sufficient customer demand.