AltaGas Ltd.
Putting points up on the board
Our view: Following Q2/23 as the first quarterly conference call under Vern Yu as CEO that featured messaging that we think resonated well with investors, the second quarterly release (i.e., the Q3/23 results) delivered solid EBITDA and EPS, and an increase in 2023 guidance. Following the Q3/23 conference call, we believe there remains a clear path forward on the deleveraging and growth fronts. Despite AltaGas' shares being the best performing stock in our Canadian energy infrastructure coverage universe since mid-July, we continue to believe the shares represent a favourable risk-reward opportunity for investors.
Key points:
Solid results underpin guidance for EBITDA and EPS to be in the upper half of AltaGas' 2023 ranges. For Q3/23, AltaGas reported normalized EBITDA of $252 million versus our estimate of $235 million and consensus of $242 million (nine estimates; range of $227-260 million). For normalized EPS, the company reported $0.10 for Q3/23 compared to our estimate of $0.06 and consensus of $0.07 (seven estimates; range of $0.04-0.11). Following the strong Q3/23 performance, the company expects to achieve full-year results in the upper half of its previously set out guidance ranges for EPS of $1.85-2.05 (we are at $1.96) and EBITDA of $1.5-1.6 billion (we are at $1.574 billion).
Still focused on reducing debt/EBITDA to 4.5x. AltaGas continues to target 4.5x debt/EBITDA, and it reiterated that it considers its 10% stake in the Mountain Valley Pipeline (MVP) to be non-core. We view MVP as the most likely asset sale candidate as part of the company’s deleveraging plan.
Continued plan to de-risk the business helps enhance the visibility of future LPG export margins. A new five-year agreement with CN Rail to transport LPGs to its export facilities combined with the commissioning of two Very Large Gas Carriers over the next 12 months help lock in logistics costs for the LPG export business. Further, the company provided an update on its near-term hedging profile, which resulted in an increased proportion of its global export volumes being hedged.
Increasing our 2023 and 2024 estimates; rolling out our 2025 forecast. For 2023, we have increased our EBITDA and EPS estimates to $1.574 billion and $1.96, respectively (up from $1.565 billion and $1.91, respectively) to primarily reflect the Q3/23 results and hedging updates. For 2024, we have increased our EBITDA and EPS estimates to $1.739 billion and $2.16, respectively (up from $1.720 billion and $2.11, respectively) to primarily reflect an improved outlook for global export margins. Last, we are rolling out our 2025 EBITDA and EPS estimates of $1.843 billion and $2.26, respectively. Relative to 2024, the increase in our estimated EBITDA and EPS in 2025 primarily reflects an incremental contribution from Pipestone Phase II and regulated utility rate base growth.