BMONovember 4, 2022 | 00:09 ET~ Pembina Pipeline PPL-TSX Rating Outperform Price: Nov-3 $45.28 Target $54.00 Total Rtn 25% Q3 -
What's Not to Like? Still a Top 3 Idea Bottom Line:
Q3/22 results beat ~10%, 2022 EBITDA guidance was raised, and the anticipated accretion from the KKR/Pembina Gas Infrastructure deal appear better than management's initial expectations.
At the same time, the dividend was recently raised 3.6%, share buybacks are tracking to plan (~1.5% of total O/S expected this year), balance sheet remains in good shape (sub 4x debt/EBITDA including 50% prefs), and shares trading at ~5% discount to Cdn. midstream average.
What's not to like? Maintain Outperform rating, Top 3 Best Idea designation, and $54 target (~25% potential total return).
Key Points Q3/22 beat. Q3/22 adj. EBITDA came in at $967M (Q3/21 of $850M), ~10% ahead consensus $883M (BMO at $880M). To us, the beat was entirely due to Marketing, with adj. segment EBITDA of $180M (vs. our $105M) on better crude oil margins and wider Chicago-AECO gas differential.
The core operating segments Pipelines and Facilities were generally in line with our expectations. PPL also repurchased $155M common shares during the quarter (YTD $288M and on track to reach $350M target by year-end).
Conf call Nov 4 at 10 a.m. ET; 416-764-8650 or 1-888-664-6383. Thoughts on the outlook. Positively, 2022E adj. EBITDA guidance was boosted for the third consecutive quarter, now expecting adj. EBITDA of $3.625-3.725B (vs. $3.575-3.675B; +1.4%) driven by strong YTD Marketing performance and rising volumes across key systems (~5% YoY expected increase in Conventional and Cochin pipeline volumes). PPL expects lower Marketing contribution in Q4 vs. Q3 (narrower diffs). Organic growth is tracking in line:
Empress Cogen was completed on-time and budget (Nov in-service), 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. Similar to pipeline and midstream peers, the market will likely not overly reward Marketing-driven beats. However, we believe the market will view positively PPL's guidance raise and positive tone on rising utilization of existing assets, unlocking of value of KKR/Pembina Gas Infrastructure (revenue growth better than expected, cash tax benefits), and new growth projects particularly on new fractionation capacity (55k bbls/d potential) and the Cedar LNG project (sanctioning potentially in Q3/23 following commercial agreements by Q1/23).
Revised estimates. We've updated our model to reflect Q3/22 results and updated guidance. Net, adj. EBITDA moves to $3,717M (vs. $3,695M) in 2022E, while our 2023-2025 estimates are unchanged. Key Changes Estimates Q4 / 22E 2022E 2023E CFPS $1.14 $4.76 $4.91 Previous $1.28 $4.90 $4.68 DCF/Sh $0.99 $4.34 $4.31 Previous $1.14 $4.45 $4.06