cibc analyst: Price Target (12-18 mos.): C$36.00Our Conclusion
Results were helped by timing items in the global export business, but were solid even after adjusting for those. 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 Ridley Island Energy Export Facility (REEF) Final Investment Decision (FID) and the potential commissioning and sale of Mountain Valley Pipeline (MVP). We reiterate our Outperformer rating and maintain our discounted cash flow (DCF) based price target of $36.
Key Points
Results Impacted By Timing: Quarterly results were higher compared to our and consensus estimates, partly reflecting a $26MM timing benefit in the global export business (ship timing and related hedging gain from higher tolling). Normalized EBITDA was $660MM, vs. our $614MM estimate and consensus at $622MM. Full-year mid-point EBITDA guidance of $1.725B was maintained. Midstream and Utilities beat our estimates, partly offset by Corporate due to a Blythe turnaround, including some elective spending.
REEF Could FID In Q2: The company is working towards making a final investment decision on REEF in late Q2/24. Progress in tolling (RIPET is now 56% tolled for 2024) means that management no longer views commercial items as a gating factor to FID. Indeed, there are indications of interest in excess of the project’s capacity. FEED work is also 95% completed, as is 85% of site preparation. Over 60% of costs are expected to be fixed-price contracts. The company made clear that it expects to remain equity self funded in 2024 and beyond, even with a positive FID on REEF.
Mountain Valley Pipeline: The MVP in-service date is expected in June, allowing the company to take steps towards value maximization. Although the EBITDA contribution will help with deleveraging, a sale of this non-core asset helps more. With the lead developer in the process of being acquired, we foresee the potential for an MVP sale taking longer.
Utilities Could Benefit From Data Center Demand: The company discussed the increase in power demand from data centers, in turn expected to increase natural gas demand. Virginia is the largest global data center market, and Loudon County is entirely in WGL’s service territory. There are optimization and rate base opportunities that are expected to evolve, but the company will need to be sensitive to customer rates and must protect itself from the risk of stranded capital through a measured approach.