AltaGas Ltd.
Quick Take: Strong Q1/24 results; Global Exports tolling now at 56%
TSX: ALA | CAD 30.13 | Outperform | Price Target CAD 32.00
Sentiment: Positive
Our take
The strong Q1/24 results help underpin our thesis that AltaGas is likely to grow EBITDA and EPS at the high-end of its Canadian midstream and regulated utility peers. Further, we believe the market will positively view the company's update that roughly 56% of its expected global exports starting in Q2/24 are under tolling contracts, which helps de-risk the Midstream business while helping support the commercial aspects of the potential REEF project.
Details
Solid Q1/24 results that exceeded our expectations and consensus. In Q1/24, AltaGas reported normalized EBITDA of $660 million versus our estimate of $607 million and consensus of $621 million (nine estimates ranging from $607 million to $628 million). For normalized EPS, the company reported $1.14 for Q1/24 compared to our estimate of $1.02 and consensus of $1.04 (nine estimates ranging from $0.98 to $1.07).
• Midstream: Segment EBITDA was $247 million versus our estimate of $196 million. The company commented that the quarterly performance was "robust" and noted strong global exports performance with a record 115,108 b/d of LPG shipments.
• Utilities: Segment EBITDA was $437 million compared to our estimate of $427 million. AltaGas noted that performance in this segment was "in line with its expectations".
• Corporate: Segment EBITDA was ($24) million compared to our estimate of ($16) million. The company highlighted an extended outage at the Blythe power plant that negatively impacted the quarterly results, with the plant being brought back into service near the end of Q1/24.
Reiterating full-year 2024 guidance. AltaGas reiterated its guidance for normalized EPS of $2.05-2.25 (we were are $2.16 heading into the quarter) and normalized EBITDA of $1.675-1.775 billion (we were at $1.739 billion heading into the quarter). Based on the company's disclosures in its Q1/24 slide deck and specifically that Q1/24 results represent 38% of its expected 2024 EBITDA, it appears that EBITDA may be trending to be near the mid-point to the upper-end of the guidance range.
Tolling up to 56% starting in Q2/24. Following the natural gas liquids (NGL) recontracting season, AltaGas highlighted that 56% of its expected global exports are now under tolling contracts beginning in Q2/24. On top of that, the company has financial hedges in place that result in roughly 90% of its remaining 2024 expected global export volumes being tolled or financially hedged.
REEF: Advancing work ahead of a potential FID in Q2/24. AltaGas noted that site clearing work is progressing as expected with about 85% of the site preparation being complete with no geotechnical surprises so far. Also, it continues to advance key commercial agreements for its Ridley Island Energy Export Facility (REEF) joint venture and that, based on "active negotiations", AltaGas does not view the commercial aspects as being a gating item to a positive final investment decision (FID).
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