Horizon Our Conclusion
Despite the adverse reaction in the share price, the company reported a
straight-forward quarter and reiterated guidance. Strengthening underlying
trends, improving tolling, and a strong hedge book for the midstream
business keep us positive on the stock. Positive catalysts are likely to
emerge later in the year, including the REEF FID and the potential
commissioning and sale of Mountain Valley Pipeline (MVP). We reiterate our
Outperformer rating and maintain our DCF-based price target of $36.
Key Points
Results In Line: Quarterly results were in line with our estimates and
consensus, while full-year EBITDA of $1.575B was in the upper half of
guidance. The business mix in the quarter saw better performance at the
utilities offset by lower midstream, although midstream was still up 12% Y/Y.
Stronger prices were realized but volumes were slightly lower than our
estimates on ship timing. The company expects to achieve or exceed 50%
tolling by year-end, an important de-risking event for shareholders. The
company is also striving to be 90% tolled in five years.
Ridley Island Energy Export Facility (REEF) Could FID In Q2: The
company is working towards making a final investment decision (FID) on
REEF in late Q2/24. The gating items include commercial contracts,
determining a final capital cost, and EPC contracts. The company is
undertaking site clearing work and construction should begin in July pending
a positive FID. The company reports a substantial increase in commercial
interest, which is also reflected in expectations of reaching 50% tolling levels
at RIPET by the end of the year. Underlying midstream trends continue to
support this outlook.
Mountain Valley Pipeline: The MVP in-service date is still expected in late
Q2/24. The company will look to sell its interest and reduce leverage, while
the business plan remains equity self-funded. At this stage, the pipeline is
99% complete, including 97% of water crossings complete. Of upland pipe
welds, 95% have been complete, as has greater than 75% of the crossing of
the Appalachian Trail, with hydrostatic testing completed on more than half
the pipeline. We expect the company to make a concerted effort to sell MVP,
which, if successful, could reduce leverage close to the 4.5x long-term target.
Deleveraging has been a powerful catalyst for stocks in the sector.