CIBCEQUITY RESEARCH
November 10, 2022 Earnings Update
TIDEWATER MIDSTREAM &
INFRASTRUCTURE LTD.
Q3/22 Results: Guidance Raised But HDRD Costs Also Higher
Our Conclusion
Strong EBITDA performance and continued refinery crack spreads remain tailwinds. Despite the cost increases to the HDRD facility, Tidewater Renewables also remains on track with the renewable diesel project, keeping us positive on TWM shares. We reiterate our Outperformer rating and $1.60 EV/EBITDA-based price target.
Key Points
HDRD Costs Increased: The bigger driver of the stock will likely be the
disclosure by Tidewater Renewables that it expects gross capital costs for the HDRD facility to be 10% higher than the previously expected $235MM due to inflationary pressures from supply chain disruptions. Net capital costs (net of BC LCFS credits) are expected to be $130MM-$140MM compared to our $122MM estimate. This does not include potential additional value from the Clean Fuel Regulation (CFR) credits expected to generate $30MM of annual EBITDA. LCFS has raised sufficient capital to fund the cost increase.
Results: Adjusted EBITDA of $62.1MM beat our estimate of $59.3MM and consensus of $56.8MM. Distributable cash, however, was $9.2MM or
$0.02/share fully diluted, below our estimate and consensus of $0.06/share. EBITDA benefitted from strong refining margins at the Prince George refinery (PGR), and high processing volumes. The DCF miss was due to higher-than- expected maintenance capital.
Guidance Increased: The company raised 2022 consolidated EBITDA
guidance to $235MM-$255MM from $230MM-$245MM and deconsolidated adjusted EBITDA guidance is still trending to the upper end of the $180MM- $190MM existing range. This implies the majority of the increase comes from Tidewater Renewables. 2022 maintenance capex was also increased due to inflationary pressures on recently completed turnarounds, and is now expected to be in the $40MM-$45MM range, up from $35MM-$40MM on a deconsolidated basis.
Operating Performance: The PGR throughput was 11,860 Bbl/d during the quarter, and crack spreads were over $95/Bbl, up over 58% Y/Y. Overall processing volumes were at 421 MMcf/d, down 2.5% Y/Y due to scheduled maintenance at the Pipestone Gas Plant, but still above our 379.1 MMcf/d estimate.
Funding Outlook: At the end of Q3/22, leverage was 2.7x, below the lower end of the leverage target range of 3.0x to 3.5x net debt to annualized adjusted EBITDA. Building the Pipestone Phase II expansion will require either a partner or project level financing.