AltaGas Ltd T.ALA

RBC

[retiredcf]

October 31, 2024

AltaGas Ltd.
Quick Take: Q3/24 result supports directional EBITDA guidance upgrade

TSX: ALA | CAD 33.75 | Outperform | Price Target CAD 40.00

Sentiment: Neutral

Our take

We positively view the stronger-than-expected Q3/24 results, the directional EBITDA guidance upgrade, and progress made on its ongoing initiatives, including on the REEF and Pipestone II construction, on Townsend and Pipestone I on the commercial side.

Details

Q3/24 results were ahead of our estimates and consensus. In Q3/24, 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.

• Midstream: Segment EBITDA was $181 million versus our estimate of $178 million and $185 million in Q3/23. AltaGas posted record global export volumes of 128,272 b/d, which was a 9% year-over-year increase, with Ferndale volumes increasing by 22%, thereby offsetting the majority of rail interruptions that largely impacted RIPET. Also, despite the recent low natural gas prices, AltaGas did not experience any decline in throughput volumes due to production shut-ins, with its year-over-year volume growth being heavily-weighted to its Montney footprint, a trend that it expects will continue in the years ahead.

• Utilities: Segment EBITDA was $117 million compared to our estimate of $91 million and $71 million in Q3/23. Year-over-year drivers include a partial settlement of WGL's post-retirement benefit pension plan, new investments, and cost controls.

• Corporate: Segment EBITDA was ($4) million compared to our estimate of ($1) million.

  With the Utilities performance being ahead of management's expectations, AltaGas is now positioned to deliver EBITDA that is toward the upper end of the 2024 guidance range. Following the strong Q3/24 performance, AltaGas now anticipates delivering EBITDA that is in the "upper end" of the $1.675-1.775 billion range (we were at $1.755 billion heading into the quarter). The company also expects its EPS to be "around the midpoint" of the $2.05-2.25 range (we were at $2.16 heading into the quarter).

  Positive updates on both the Midstream and Utilities segments. These include:

• New arrangements at the Townsend and Pipestone I facilities. AltaGas entered into two agreements that have a "high-single- digit" average contract length with a large investment-grade international energy company for a total of 100 MMcf/d of gas processing capacity at its Townsend facility. Separately, the company has extended the contract term with a large Canadian investment-grade producer at the Pipestone I gas processing facility for an additional five years.

• Multiple utility filings made in D.C. WGL filed a rate case application with the Public Service Commission of D.C., seeking a US $46 million increase to base rates, including a proposed weather normalization adjustment. WGL also submitted its District SAFE ARP application, which aims to invest US$215 million over three years beginning May 2025.

  Leverage targets recalibrated, recognizing the higher utilization of hybrid and preferred capital. 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. Notably, AltaGas expects "strong equity interest" relating to its 10% stake sale in MVP, and is currently progressing price discovery.

  Conference Call: Today at 11:00 AM (ET)

  The dial-in number is [phone]