BMO: Beauty is in the eye of ....etcMay 4, 2023 | 21:37 ET~
Pembina Pipeline PPL-TSX Rating Outperform Price: May-4 $42.97 Target $54.00 Total Rtn 32%
Q1 - ~5% EBITDA Beat and Unexpected 2.3% Divvy Increase; Maintain OP Bottom Line:
First-quarter results exceeded market expectations and underscore PPL's diversified and integrated business model.
The impact of the Northern pipeline outage was greater than expected, but PPL diverted some volumes to Peace and frac spreads were better than expected.
At the same time, the KAPS sale has closed, dividend was increased ~2%, and new growth is surfacing. Combined with an attractive valuation (10.4x vs. 11.2x midstream average) and 30%+ potential return, we're maintaining our Outperform rating and $54 target.
Conf. call on May 5 at 10 a.m. ET; 1-416-764-8658 or 1-888-886-7786.
Key Points Q1/23 results above. Q1/23 adj. EBITDA came in at $947M (Q1/22 of $1,005M), ~5% above consensus $906M (BMOe $900M), despite a greater-than-expected impact of the Northern Pipeline outage ($54M friction vs. $30M guidance). Some of the positive variance was due to Marketing ($169M vs. our $148M), but about one-third of the delta was due to Pipelines ($525M vs. our $511M), while Facilities delivered reliable results ($298M vs. our $295M). The quarterly dividend was increased 2.3% to $0.6675 for Q2/23 (a small positive surprise). Prop. debt/EBITDA was 3.6x and PPL expects to exit the year between 3.3-3.6x and the sale of PGI's 50% interest in KAPS was completed on April 26. Thoughts on the outlook. PPL reaffirmed 2023E adj. EBITDA guidance range of $3.5-3.8B, which now reflects the impact from the Northern pipe outage (a further $25-30M impact in Q2, with full service latter half of second quarter) offset by strongerthan-expected frac spreads (lower gas costs). Sanctioned projects remain on-track: $530M Phase VIII in-service 1H/24 (trending under budget and on time) and RFS IV ($460M and in-service 1H/26). Thoughts on the stock. With the ~5% adj. EBITDA beat and unexpected (but modest) 2.3% dividend increase, we expect PPL shares to be a slight relative outperformer in the Cdn. midstream complex. The next notable catalysts will be delivering to or exceeding 2023 guidance and potential sanctioning of new projects including the 3Mtpa Cedar floating LNG project by end of Q3/23, as well as the Alberta Carbon Grid (50% owned) — both of which are not yet in our financial model. Revised estimates. We have updated our model to reflect Q1/23 results and additional impact of the Northern Pipeline outage. Net, adj. EBITDA moves to $3,681M (vs. $3,664M) in 2023E, while our 2024 and 2025 estimates are unchanged.