Upgrades & TP Hikes - G&M Pembina Pipeline Corp.’s (
) $3.1-billion acquisition of Enbridge Inc.’s (
) interests in the Alliance Pipeline, Aux Sable and NRGreen joint ventures is a “no brainer” consolidation, according to National Bank Financial analyst Patrick Kenny, who believes it “further strengthens” the Calgary-based company’s “strategy of owning high-quality liquids-rich infrastructure while providing customers access to premium end markets.”
Resuming coverage after Pembina’s $1.3-billion equity offering, he touted the deal’s strategic rationale and enticing cost.
“The price tag represents an attractive 2024 estimated adj. EBITDA multiple of 9 times (approximately $340-million EBITDA), with an incremental $40-$65-million from expected synergies grinding the multiple down towards 8 times and representing 5-per-cent accretion to our 2025+ AFFO/sh [adjusted funds from operations per share] estimates,” said Mr. Kenny.
“From a cash flow quality standpoint, the Alliance Pipeline aligns with the company’s low-risk profile with more than 80-per-cent takeor-pay contributions with a weighted average term of greater than 7 years. Meanwhile, although Aux Sable generates primarily commodity-based cash flows (NGL frac spread), the Chicago facility represents a longer-term growth platform for the company’s marketing business upon expiration of the 100,000 bpd [barrels per day] third-party NGL offtake agreement at the end of the decade. On the leverage front, including the company’s recent 2024 capital budget of $880-million, our 2024 estimated D/EBITDA of 3.8 times (was 3.5 times) remains well within the company’s 3.5-4.25 times guardrail.”
Believing Pembina’s “leverage “remains in check,” he raised target for its shares by $1 to $46, maintaining a “sector perform” rating. The average is $51.57.
Elsewhere, others making changes include:
* Scotia’s Robert Hope to $50 from $49 with a “sector outperform” rating.
“We view the transaction as a win / win for both parties. For Pembina, it increases its ownership in strategic assets and presents opportunities to capture significant synergies that could increase EBITDA by 10-20 per cent in the near term,” said Mr. Hope. “The transaction is quite accretive without materially increasing leverage, with management forecasting adjusted cash flow per share accretion in the mid-single digits during its first full year of ownership. Overall, our distributable cash flow estimates increase by 2% in 2025 with higher accretion likely in future years as additional synergies are realized. Given its strong balance sheet and funding position, Pembina is well positioned to finance the transaction and also continue to pursue additional growth projects such as Cedar LNG.”
* Stifel’s Cole Pereira to $54.50 from $53 with a “buy” rating.
“We have a positive view of the transaction as it (1) consolidates ownership of existing key assets that further enhance its Montney position; (2) does so in a manner that is accretive on both a trading multiple and per-share basis; and (3) maintains its strong balance sheet. We continue to have a bullish view on PPL given the growth trajectory from its leading Montney infrastructure position, clean balance sheet and valuation,” said Mr. Pereira.
* BMO’s Ben Pham to $52 from $51 with an “outperform” rating.
“PPL’s acquisition of additional interests in Alliance and Aux Sable for $3.1-billion was not front and centre for us, but we believe that PPL is the logical buyer and the transaction is immediately accretive, leverage neutral, and has potential long-term upside (not yet reflected in our estimates),” he said. “Moreover, it reinforces our recent view that the probability of a potential acquisition of TMX (which has weighed on shares) is low.”
* CIBC’s Robert Catellier to $54 from $52 with an “outperformer” rating.