BMOFebruary 24, 2023 | 00:24 ET~
Pembina Pipeline PPL-TSX Rating Outperform Price: Feb-23 $45.22 Target $54.00 Total Rtn 25%
Q4 - Exceeds 2022 Guidance and Announces New Frac Project; Maintain Outperform
Bottom Line: Fourth-quarter results illustrated the enduring value of PPL's integrated midstream value chain, supporting record results (2022 guidance exceeded) and leading to new organic growth (sanctioned a new frac). In the meantime, yield is attractive (5.8%), the balance sheet is in good shape (self-funded and lower end of target range), and valuation is attractive (~10.5x EV/EBITDA vs. ~11x peer average). As such, we're maintaining our Outperform rating and $54 target (~25% potential total return). Conf. call on February 24 at 10 a.m. ET; 1-416-764-8646 or 1-888-396-8049.
Key Points Q4/22 above. Q4/22 adj. EBITDA came in at $925M (Q4/21 of $970M), above consensus $908M and our $920M. The positive variance was mainly due to Marketing ($171M vs. our $142M) as Pipelines ($548M vs. our $547M) and Facilities ($288M vs. our $295M) were close to our expectations. In turn, full-year adj. EBITDA of $3.746B (+9% YoY) came in above the top end of guidance of $3.625-$3.725B.
PPL also repurchased $84M common shares during the quarter, achieving its $350M target (1.4% of total shares) and reduced leverage to low end of target range 3.5-4.25x.
Thoughts on the outlook. PPL reaffirmed 2023E adj. EBITDA range of $3.5-3.8B, despite $30M expected negative impact from lost volumes and costs from the Northern Pipeline leak on Jan. 18. Other key drivers include higher volumes, tolls, and increasing utilization, partially offset by moderation in Marketing.
On organic growth, PPL sanctioned a new 55k bpd fractionator at its Redwater complex (RFS IV) backed by long-term ToP contracts ($460M and in-service 1H/26) — 2023 capex now $800M vs. $730M. Also, Peace Phase IX was placed in-service Dec. 22, and Phase VIII ($530M) still expected in-service 1H/24.
Thoughts on the stock. With the modest beat and new organic growth, we expect PPL shares to be a slight relative outperformer in the Cdn. midstream complex. The next notable catalyst will be delivering to 2023 guidance and continued sanctioning of new projects ranging from low capital intensive debottleneck projects (likely in gas processing) all the way to larger projects such as the $1.5B net Cedar LNG (FID by Q3/23) and Alberta Carbon Grid (50% owned).
Revised estimates. We have updated our model to reflect Q4/22 results and new frac project. Net, adj. EBITDA moves to $3,636M (vs. $3,667M) in 2023E, while $3,742M in 2024E and $3,826M in 2025E is unchanged.
Key Changes Estimates Q1 / 23E 2023E 2024E CFPS $1.19 $5.01 $5.30 Previous $1.21 $4.93 $5.17 DCF/Sh $1.00 $4.31 $4.60 Previous $1.01 $4.25 $4.49 Energy Infrastructure Ben Pham, CFA Analyst ben.pham@bmo.com (416) 359-4061