Pembina Pipeline Corp T.PPL

From RBC

[Al42]

EQUITY RESEARCH QUICK TAKE
RBC Dominion Securities Inc.
Robert Kwan, CFA (Analyst)
[phone], [e-mail]
Maurice Choy, CFA, CA, CPA (Analyst)
[phone], [e-mail]
May 4, 2023
Pembina Pipeline Corporation
Quick take: Solid results exceed consensus; dividend increased by 2%
TSX: PPL | CAD 42.97 | Outperform | Price Target CAD 58.00
Sentiment: Positive
Our take
• We positively view the quarterly results that exceeded consensus, the continued management commentary with respect to
benefitting from volume growth, the reiteration of 2023 guidance despite a higher-than-expected cost from the Northern
Pipeline outage, and continued messaging of free cash flow generation resulting in further deleveraging, which creates balance
sheet optionality to fund future growth initiatives.
• The Q1/23 disclosures give us increasing confidence in our thesis that Pembina is well-positioned to benefit from growing WCSB
natural gas and NGL volumes. Specifically, the company highlighted that it has recontracted all volumes from recent and near-
term expirations on the Peace Pipeline, while executing new contracts for roughly 65,000 b/d of incremental volumes, all of this
despite competition from the newly constructed KAPS pipeline.
Details
Results exceed consensus. In Q1/23, Pembina’s EBITDA was $947 million versus our Street-high forecast of $962 million and
consensus of $906 million (11 estimates; range of $888–962 million), while AFFO/share in Q1/23 was $1.15, compared to our
forecast of $1.22.
• Core Pipelines and Facilities segment EBITDA was very close to our forecast. Pipelines EBITDA was $525 million versus our
forecast of $526 million, Facilities EBITDA was $298 million compared to our estimate of $299 million, Marketing & New Ventures
EBITDA was $169 million versus our forecast of $189 million, and Corporate EBITDA was ($45) million compared to our estimate
of ($51) million.
• EBITDA would have been even higher absent IFRS 15 contract deferrals and increased Northern Pipeline costs. Our estimates
included $12 million of IFRS 15 take-or-pay contract deferred revenue and $30 million of costs associated with the Northern
Pipeline incident. In Q1/23, Pembina deferred $26 million of revenue (that should reverse in the coming quarters), with Northern
Pipeline costs negatively impacting Q1/23 EBITDA by $54 million (versus the company's previous guidance of $30 million).
Dividend increased by 2% to a new annualized rate of $2.67/share (up from $2.61/share). While we were expecting an increase
to $2.70/share, we are not reading anything into the company electing to increase the dividend by an amount that is slightly below
our forecast. The new $0.6675/share quarterly dividend will be paid on June 30, 2023, to shareholders of record on June 15, 2023.
EBITDA guidance for 2023 reiterated. As part of the quarterly release, Pembina reiterated its 2023 EBITDA guidance range of
$3.5-3.8 billion (we were at $3.709 billion heading into release). The company specifically noted that the reiterated guidance
includes the impact of the Northern Pipeline system outage as well as widening frac spreads due to lower natural gas prices. With
respect to the Northern Pipeline outage, on top of the negative $54 million impact in Q1/23, Pembina expects Q2/23 EBITDA to
be negatively impacted by $25-30 million, assuming the resumption of full service in the latter half of this quarter.
Pembina continues to guide to being free cash flow positive in 2023. The company continues to expect operating cash flow to
exceed dividends and all capital expenditures. While share buybacks remain an option, Pembina expects to use its free cash flow
to repay debt to create funding optionality for future projects. At the end of Q1/23, Pembina noted that its proportionate net
debt/adjusted EBITDA was 3.6x and that it expects to exit 2023 with a ratio of between 3.3-3.6x.