Analyst update detailsLong-Term Upside Still Waiting in the Wings
Target to $73
Bottom Line:
Rising North American gas demand combined with TRP's nimble management and premium energy infrastructure assets have generated an attractive multi-year growth profile of 5-7% that we believe could extend until at least the end of the decade. While we are maintaining our Market Perform rating, we are boosting our target price to $73 (vs. $70) as we believe there is upside to near- and long-term growth expectations on delivery to the target $6-7B net capex investment program while maintaining a 4.75x debt/EBITDA upper limit balance sheet.
Key Points
Shares have outperformed this year. TRP shares have outperformed YTD 2024 (~1,200bps vs. pipeline peers). Declining bond yields, the U.S. election result, and broader industry tailwinds drove positive sentiment. Growth also exceeded expectations and the much-anticipated SOBO spin did not weigh on near-term share performance as we had expected. As a result, shares are now one of most expensive in our coverage (~12x EBITDA vs. ~11x pipes, ~11.5x renewables, 11x utilities, and 8-9x Alberta power).
$6-7B annual capex: what if? With rising demand for North American gas and TRP's well-positioned infrastructure footprint, we are now more confident than ever that TRP can achieve its target $6-7B organic growth through at least the end of the decade. Assuming TRP delivers to this spend, we estimate 2027E EBITDA CAGR of 6% (vs. our prior 5%) and 2030E 5-6% (vs. our current 4%, which only assumes sanctioned capital). This potential long-term growth rate screens a tad better than peers' (ENB is guiding for 5%, KEY 6-7% through 2025, PPL 4-6% through 2026, and SOBO 2-3%).
Long-term upside is attractive. Based on our long-term scenarios of $6-7B capex deployment, we calculate potential 2030E future net asset value of ~$86/sh assuming our current target 12.5x EBITDA valuation. With that further potential capital appreciation, we believe TRP represents an attractive investment opportunity for those with a multi-year investment horizon, esp. with the ~4.8% yield growing 3-5% p.a.