AltaGas Ltd T.ALA

Alternate Symbol(s): ATGFF | T.ALA.PR.A | ATGPF | T.ALA.PR.B | T.ALA.PR.G | ATGAF

AltaGas Ltd. is a Canada-based energy infrastructure company that connects natural gas and natural gas liquids (NGLs) to domestic and global markets. The Company’s segments include Utilities and Midstream. Its Utilities segment owns and operates franchised, rate-regulated natural gas distribution and storage utilities, which includes four utilities that operate across five United States jurisdictions. It Utilities segment also includes storage facilities and contracts for interstate natural gas transportation and storage services, as well as the affiliated retail energy marketing business. Its Midstream segment includes global exports, which includes its two LPG export terminals; natural gas gathering and extraction, and fractionation and liquids handling. Its Midstream segment also consists of natural gas and NGL marketing business, domestic logistics, trucking and rail terminals, and liquid storage capability. Its subsidiaries include Wrangler 1 LLC, WGL Holdings, Inc. and others.

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AltaGas Ltd

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Post by incomedreamer11on Jul 29, 2022 8:55am

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Post# 34859531

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AltaGas Ltd.

ALA-T: C$27.70
Target: C$34.00
Rating: Sector Outperform

High-Quality Growth at an Attractive Price

OUR TAKE: Neutral. AltaGas’s Q2/22 results were slightly below our expectations. That said, our outlook and estimates are largely unchanged. The quarter benefited from a strong Utility contribution, which was more than offset by a softer Midstream contribution. AltaGas’s utility segment is seeing strong growth, and we believe these assets are not properly reflected in the share price. At 10.9% 2023E free cash flow yield, AltaGas is trading like a midstream company (in fact, at a discount to its midstream peers, which are trading at an average of 9.8%). At 13.7x 2023E P/E, we view AltaGas as a way for investors to get exposure to high-growth utility assets at a discounted valuation (the other Canadian utilities are trading in the 18x-21x range).

KEY POINTS

Impressive Global Export volume growth. Record Global Export volumes of 111 kbpd were ahead of our 102 kbpd estimate and up 23% y/y and 26% q/q. This represents 64 kbpd of propane at RIPET and 47 kbpd of propane / butane at Ferndale. The volume growth is being driven by strong demand from Asia as well as continuous improvement in AltaGas’s logistical capabilities. Looking forward, we expect that AltaGas will continue to be able to push additional volumes westwards through its export facilities. That said, the number of long-term contracts at RIPET has been stagnant for some time. We believe that producers / aggregators and users of LPG will sign up for longer-term contracts over time. However, this could be more of a 2023 event, as the commodity environment has been volatile, producer growth outlooks are now becoming more visible, and the Canadian propane market will need time to adjust to the start-up of the Heartland facility. Additional contracts could support an expansion of RIPET, though we view that as a longer-term issue.

Global export margins should rebound in H2. Midstream EBITDA was slightly below our estimate as the quarter was impacted by turnarounds (~$9m), the loss of equity barrels to serve RIPET (~$5m), tighter butane spreads, and higher shipping costs. Looking to H2/22, we expect that shipping costs will continue to be a headwind, though we assume that butane spreads will widen out. In each of 2023 and 2024, we assume midstream EBITDA grows ~6%, largely driven by higher global export volumes as well as other low-capital, high-return projects.

Guidance – more tailwinds than headwinds. Our estimates do not materially move. Our 2022 EPS estimate of $1.89 is in the upper half of the 2022 guidance range of $1.80-$1.95. Our $1.528b 2022 EBITDA estimate would be toward the mid-point of the $1.5b-$1.55b guidance range. In terms of tailwinds, the company sees: 1) strong frac spreads, 2) the recent Petrogas acquisition, 3) a weaker Canadian dollar, 4) colder weather in Q1, and 5) higher global export volumes. In terms of headwinds, the company sees butane margins as well as the previously announced Mountain Valley delay, and the sale of Aitken Creek.