Our view: With the recent share price underperformance suggesting that the slightly lower-than-expected 2025 guidance (at the midpoint) is priced in, the positives we focus on include: (1) favourable volume commentaries relating to Q4/24 and 2025 (supporting a 5.5% year-over-year growth in fee-based EBITDA); (2) the reaffirmation of Pembina's 4-6% fee-based EBITDA/share, 2023-2026 CAGR guidance; and (3) a fully funded plan for the $1.1 billion capex program in 2025. Beyond delivering results that support/beat this guidance, investors can expect Pembina to successfully assign its 1.5 mtpa capacity at Cedar LNG to third parties in the year ahead.
Key points:
EBITDA guidance range for 2025 introduced, with the midpoint being slightly below consensus. Pembina anticipates its adjusted EBITDA to be $4.2-4.5 billion, with the midpoint being roughly 3% lower than the $4.462 billion consensus heading into the release. Importantly, when excluding the $550 million Marketing & New Ventures contribution (i.e., the commodity- exposed segment), the midpoint of the guidance range represents roughly a 5.5% year-over-year increase in fee-based adjusted EBITDA (consistent with Pembina's Q3/24 results call commentary).
Setting up for a strong finish in 2024, while near-term guidance remains unchanged. For 2024, the company noted that volumes in the Conventional Pipelines division have "strengthened" in Q4/24 relative to 9M/24, which is in line with its commentary on the Q3/24 results conference call. Also, over the 2023-2026 period, it remains on-track to achieve a 4-6% CAGR of fee-based adjusted EBITDA/share that it had previously messaged.
Capex was a little lower than our forecast, although additional projects may emerge. Pembina expects 2025 capex of $1.1 billion (versus our previous forecast of $1.2 billion), with growth capex relating to previously- sanctioned projects, and development spending on potential future projects in response to the energy industry's growing volumes. If some of these future projects are sanctioned (e.g., de-ethanizer tower at RFS III to support Dow’s Path2Zero Project; 200,000 b/d Fox Creek-to-Namao Peace Pipeline Expansion), the 2025 capex may rise by up to $200 million.
Still fully funded with leverage in good shape. Pembina expects to generate positive FCF with all its 2025 capital investment being fully funded by cash flow from operating activities, net of dividends. It anticipates to prioritize debt repayment in 2025, such that its year-end proportionately consolidated debt/EBITDA ratio forecast by the company is expected to be between 3.4-3.7x (versus 3.50-4.25x target range).
Modest estimate revisions. We have modestly lowered our 2025 and 2026 EBITDA and AFFO/share estimates to mainly reflect more conservative Transmission Pipelines (most notably related to the Cochin Pipeline) and Marketing contributions, as well as higher cash taxes.