BMO: Pham slams the table.August 5, 2022 | 01:10 ET~ Pembina Pipeline PPL-TSX Rating Outperform Price: Aug-4 $46.87 Target $55.00 Total Rtn 23%
Q2 - Solid Quarter and Guidance Raised; Still Top Pipeline Idea
Bottom Line: Q2/22 results were in line with expectations and the 2022 EBITDA guidance raise should come as no surprise. Nonetheless, we view the results and outlook as positive with momentum continuing on Western Cdn. volumes, recontracting (Alliance), and new potential growth (such as Cedar LNG and Alberta Carbon Grid).
We do not believe the market yet appreciates this positive fundamental outlook with shares trading at 11.3x EV/EBITDA (~5% discount to peer average). As such, we're maintaining our Outperform rating,
Top 3 Best Idea designation, and $55 target (~23% potential total return).
Key Points Q2/22 in line. Q2/22 adj. EBITDA came in at $849M (Q2/21 of $778M), generally consistent with consensus $852M (BMO at $858M). To us, a large part of the negative variance was due to Marketing seasonality (i.e., Q2 is typically the lowest of the year) with adj. segment EBITDA of $103M (vs. our $110M). The core operating segments Pipelines and Facilities were a few million from our expectations. PPL also repurchased $66M common shares during the quarter (YTD $122M vs. 2022E target up to $350M) and the Phase VII expansion was commissioned June 1 (ahead of schedule) and ~$150M under budget.
Conf call Aug 5 10 a.m. ET; 1-647-792-1240 or 1-800-437-2398.
Thoughts on the outlook. Also good news is 2022E adj. EBITDA guidance was boosted for second straight quarter to $3.575-3.675B (vs. $3.45-3.6B; +2.8%) driven by higher contribution from Marketing, Alliance, and Cochin, coupled with closing of the KKR JV expected August.
Alliance continues to experience positive re-contacting outcomes as evidenced by three open seasons during Q2 (now contracted over 90% through Oct. 31, 2023).
Organic growth is tracking in line: Peace Phase IX expansion still Q4/22 in-service and $120M budget, and Phase VIII 1H/24 commissioning unchanged ($530M capex).
Thoughts on the stock. With in-line results and what we think was an expected 2022 guidance raise, we see the results and outlook as positive nonetheless with upcoming anticipated close of the KKR JV driving accelerated capital return, improved Western Cdn. activity levels driving more volumes through its integrated system, frac spread upside, and potential sanctioning during 2023 of larger-sized projects not yet in our estimates, such as Cedar LNG and Alberta Carbon Grid (50% interest).
Raising estimates. We've updated our model to reflect Q2/22 results and updated guidance. 2022E EBITDA to $3,681M (vs. $3,675M) and 2023E EBITDA to $3,653M (vs. $3,642M)