Our view: While the headline Q3/24 G&P and Liquids Infrastructure volumes were lower year-over-year, we favourably view the near-record quarterly throughput at the North G&P assets (which likely would have set a new record absent of the Wapiti turnaround), the full utilization of the two KFS frac units, and the continued ramp-up of KAPS (the latter two supporting the second highest quarterly realized margin for Liquids Infrastructure). As the market's focus on volumes continue into the new year, we highlight Keyera's EBITDA upside if/when it deploys meaningful growth capital that is backed by its enviable balance sheet strength.
Key points:
Tight fractionation market and growing demand underpin KFS capacity expansion opportunities. With both the existing KFS fractionation units (totalling 98,000 b/d of net capacity) fully utilized through Q3/24 and its anticipation of operating at full capacity in 2025, Keyera continues to advance on the KFS Frac II debottleneck initiative (potential early 2025 sanctioning for a 2026 in-service date that will add 8,000 b/d of capacity) and the KFS Frac III expansion (ongoing progress on customer contracting and engineering relating to this 47,000 b/d capacity addition).
Solid balance sheet offers optionality. Keyera ended Q3/24 with an enviable 1.9x debt/EBITDA (versus its 2.5-3.0x target range), which we believe offers EBITDA upside if/when this balance sheet capacity is deployed into growth projects (management reaffirmed its ability to equity self-fund the two KFS projects and KAPS Zone 4). Keyera reiterated the importance of underpinning its infrastructure projects (including fractionation investments) with long-term contracts where the take-or- pay volumes support its 10–15% pre-tax target return on capital threshold (with upside from spot volumes, follow-on contracts, and/or marketing activities), adding that it expects the two KFS projects to generate "strong" returns on an individual basis and on an integrated basis.
Solid Q3/24 results support the reaffirmation of the 2024 guidance.
EBITDA in Q3/24 was slightly ahead of consensus and largely in line with our estimate, with the results supporting management's reaffirmation of its 2024 guidance. Separately, the company will be providing its 2025 guidance on December 10, 2024, and reiterated that it remains on track to reach the upper-end of its 6-7% EBITDA CAGR range for the 2022-2025 period (holding Marketing realized margins constant at $310 million).
Modest estimate changes. While we remain comfortable with our 2026 estimates, we have slightly moderated our 2024 and 2025 estimates to mainly reflect Q3/24 results takeaways (particularly lower volumes on certain assets) and a lower Marketing EBITDA estimate in 2025.