CIBCEQUITY RESEARCH
October 31, 2024 Earnings Update
ALTAGAS LTD.
Q3/24 Results: Non-recurring Items Limit Comparability, But
Business Momentum Remains Strong
Our Conclusion
Headline numbers reflect a substantial beat relative to our estimates and
consensus; however, the results benefitted from one-time items. Operations
continue to show strong momentum, including record export volumes and
additional midstream contracting. We reiterate our Outperformer rating and
maintain our discounted cash flow (DCF)-based price target of $40.
Key Points
Results Beat Due To Non-recurring Item: Normalized EBITDA was
$294MM vs. our $267MM estimate and consensus of $269MM. The Utilities
segment benefitted from a $65MM gain from the partial settlement of a post-
retirement plan. Full-year mid-point EBITDA guidance was maintained, but
management expects to be in the upper half of the $1.675B-$1.775B range,
consistent with our estimates and consensus. The company has revised its
leverage targets to reflect the recent US$900MM hybrid debt issuance. The
new target is 4.0x, excluding hybrids and preferred shares, down from 4.5x
previously. It has also introduced a 4.65x target including hybrids and
preferred shares at 50% equity treatment.
Utilities Challenged By Weather: The Utilities segment experienced 60%
warmer weather over the quarter, and this remains a headwind for Q4/24.
Furthermore, asset optimization and retail performance were lower than
Q3/23; however, these items have a history of generally beating
expectations. Ultimately, the decision to partially settle a post-retirement plan
reduces earnings volatility, and if the company is successful in securing a
weather normalization adjustment for its D.C. utility, as proposed in the most
recent rate filing, volatility will likely be further reduced. Rate base
investments to support data centres could be secured in the coming
quarters, and we remain optimistic about this segment.
Midstream Contracting Progress: AltaGas showed notable contracting
progress recently. The company secured an additional 100 MMcf/d of
contracted volumes at the Townsend plant with high single-digit contract
length, extended a customer at Pipestone for five years, and expects to
exceed previously committed long-term tolling targets and will likely need to
shift some tolling volumes to the second phase of REEF. The two key
midstream projects, namely Pipestone II and REEF, are progressing as
expected.
Mountain Valley Pipeline: The company is progressing price discovery for
the sale of this asset. Given expansion potential, demand for gas
infrastructure, and supportive financial markets, we are optimistic that a sale
will conclude in H1/25, if not sooner. This is an important catalyst to meeting
leverage targets.
The next likely catalyst we see for the shares will be the company’s 2025
guidance, expected to be released in early December 2024.