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TC Energy Corp T.TRP

Alternate Symbol(s):  T.TRP.PR.A | TCEYF | T.TRP.PR.B | TRPEF | T.TRP.PR.C | TCANF | T.TRP.PR.D | TRPPF | T.TRP.PR.E | TRPRF | T.TRP.PR.F | TNCAF | T.TRP.PR.G | TCNCF | T.TRP.PR.H | TCENF | T.TRP.PR.I | TRP | T.TRP.PR.L

TC Energy Corporation is a Canada-based energy problem solver working to move, generate and store the energy in North America. Its segments include Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines and Mexico Natural Gas Pipelines, Liquids Pipelines and Power and Energy Solutions. The Company's business includes Energy Solutions, Natural Gas, Oil and Liquids and Power and Storage. The Natural Gas business includes its 93,300 kilometers (km) (57,900 miles) network of natural gas pipelines, which supplies more than 25 % of the clean-burning natural gas consumed daily across North America to heat homes, fuel industries and generate power. The Oil and Liquids business has its oil & liquids pipeline infrastructure, approximately 4,900 km, which connects Alberta crude oil supplies to United States refining markets in Illinois, Oklahoma, Texas and the United States Gulf Coast. Its portfolio of energy infrastructure assets includes investments in seven power generation facilities.


TSX:TRP - Post by User

Post by Dibah420on Jul 25, 2023 10:44am
384 Views
Post# 35555821

BMO:Ben Pham T/P $60

BMO:Ben Pham T/P $60July 24, 2023 | 20:07 ET~ TC Energy TRP-TSX TRP-NYSE Rating Outperform Price: Jul-24 $50.89 Target ↓ $60.00 Total Rtn 25%
Updating Model for Minority Sale of Columbia; Target to $60 vs. $64
Bottom Line: We maintain our Outperform rating on TRP shares following the US$3.9B ($5.2B CAD) minority sale of its Columbia Gas and Gulf assets.
While the implied valuation was disappointing (10.5x vs. our 12x expectation) and could cause investors to re-evaluate sector valuations for our Canadian pipes coverage, the implied total return to our new target of $60 (vs. $64) is still attractive (esp. with the 7% plus yield) and the $5B plus asset divestiture target for 2023 has effectively been largely de-risked (providing flexibility on the next round of asset sales).
Key Points Key questions asked (for more details see our note):
1) How do you get to 10.5x EV/EBITDA valuation? The US$3.9B equity consideration implies US$9.75B on 100% basis. We add that to the assumed Columbia debt of US $8.2B to derive an EV of ~US$17.9B. Applying that to our 2023E adj. EBITDA of ~US1.7B for Columbia Gas and Gulf gets us close to 10.5x.
2) What drove the underwhelming multiple? We believe the sustained high interest rate environment, no control premium, and the relatively large size of the deal weighed on what potential buyers were willing to pay. We were expecting 12x EV/ EBITDA, especially for a high-quality regulated/contracted asset such as Columbia.
3) Are you expecting further asset sales? We believe further asset sales are required to achieve de-leveraging target of 4.75x run-rate. However, we believe TRP has flexibility on timing. We model additional asset sales of ~$3.1B/~$1.2B in 2024/25 at 11x implied valuation (down from 12x).
4) Any read-throughs on the broader sector? No doubt the headline 10.5x valuation for Columbia (and other recent midstream precedents) is a negative read-through for our Cdn. pipelines coverage and more specifically our TRP SOTP analysis. As such, we are shifting our consolidated target valuation down to 12.5x (vs. 13x), driving our target price to $60 vs. $64. TRP's NGTL and Bruce Power assets (25% of adj. EBITDA) notably supports our SOTP valuation, while Mexico gas pipes and Alberta power partially offsets.
5) What are we doing with our estimates? Our 2023-2025E adj. EBITDA estimates are unchanged (Columbia still consolidated), but our EPS (f.d.) moves lower to $4.29 (vs. $4.30) in 2023E, $4.18 (vs. $4.27) in 2024E, and $4.45 (vs. $4.49) in 2025E.
Key Changes Target $60.00↓ $64.00 Estimates 2023E 2024E EPS $4.29 $4.18 Previous $4.30 $4.27 DCF/Sh $6.68 $6.17 Previous $6.69 $6.37 Energy Infrastructure Ben Pham, CFA Analyst 
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