Our view: Amid the noise around the quarterly results that may have led to a modest share price underperformance, positives worth highlighting include: (1) the setting of another global export volumes record (in spite of the rail strike that led to one cargo slipping into Q4/24); (2) no decline in throughput due to production shut-ins; (3) favourable construction and commercial updates; and (4) supportive commentary on long-term tolling agreements for the global exports platform. We expect further share price appreciation as these fundamentals remain solid (if not strengthen), and as AltaGas progresses through its growth and derisking initiatives.
Key points:
Progressing through growth and derisking initiatives. As the market awaits the next material update on long-term tolling agreements for its global exports platform, we highlight: (1) the setting of another record global export volumes of 128,272 b/d in Q3/24; (2) that AltaGas continues to advance commercial agreements for Phase 1 of REEF, with a number of agreements now in definitive documentation stages; and (3) that it is "very comfortable" in achieving its long-term tolling target across the portfolio, and once it reaches its target, management anticipates that some tolling demand will be satisfied by Phase 2 of REEF.
Balance sheet: Price discovery in the MVP stake sale is underway, as leverage targets are recalibrated for better transparency. AltaGas expects "strong equity interest" relating to the sale of its 10% stake in MVP, and is currently progressing price discovery. Separately, following the US$900 million hybrid capital issuance in September, AltaGas has set new leverage targets, which are 4.0x (down from the previous target of 4.5x), or 4.65x when including a 50% debt treatment for preferred equity and hybrid capital. On these new metrics, the company exited Q3/24 at 4.3x and 5.0x, respectively.
Stronger-than-expected Q3/24 results support directional upgrade for the 2024 EBITDA guidance. Helped by a partial settlement of WGL's post- retirement benefit pension plan, AltaGas reported normalized EBITDA of $294 million versus our estimate of $268 million and consensus of $269 million (nine estimates; range of $266-274 million). For normalized EPS, the company reported $0.14 for Q3/24 compared to our estimate of $0.08 and consensus of $0.09, with the variance to our estimates largely to do with the higher EBITDA. With these results, AltaGas now anticipates delivering EBITDA that is in the "upper end" of the $1.675-1.775 billion range and EPS that is "around the midpoint" of the $2.05-2.25 range.
Modest estimate changes. As page 5 discusses, we have revised our EBITDA and EPS estimates mainly to reflect moderated contributions from Midstream (as the mix of tolling rises) and Utilities (given our takeaways from the quarterly results), as well as slightly higher expenses on financing (following the recent hybrid issuance) and taxes.