Gibson Energy Inc T.GEI

RBC

[retiredcf]

July 31, 2023

Gibson Energy Inc.
Quick Take: Core results were slightly ahead of expectations driven by Marketing

TSX: GEI | CAD 21.47 | Outperform | Price Target CAD 28.00

Sentiment: Neutral

Our take

With the core results largely coming in line with our forecast, we do not expect the results themselves to materially impact the share price. We look to the conference call for updates on the outlook for Marketing, as well as additional commentary on the pending acquisition of the South Texas Gateway Terminal (STGT) and the $16.7 million environmental provision booked as part of Q2/23 results.

Details

Core Q2/23 results were largely in line with our forecast. In Q2/23, Gibson Energy's adjusted EBITDA was $116 million, which compares to our estimate of $126 million and consensus of $125 million (12 estimates; $121-129 million); however, excluding the unusual $16.7 million environmental remediation provision that was booked during the quarter, EBITDA would have been slightly ahead of our expectations due to stronger-than-forecast Marketing results. Gibson Energy's DCF/share was $0.58 in Q2/23 versus our forecast of $0.58 and $0.50 in Q2/22.

• Infrastructure: The Infrastructure segment delivered EBITDA of $94 million in Q2/23, compared to our forecast of $110 million and Q2/22 EBITDA of $112 million. Excluding the unusual $16.7 million provision for environmental remediation obligations, Infrastructure EBITDA was very close to our forecast.

• Marketing: Marketing EBITDA was $34 million for the quarter versus our forecast of $28 million and $12 million in Q2/22.
• Cash G&A: In Q2/23, cash General & Administrative costs were ($12) million relative to our estimate of ($11) million and ($11) million in Q2/22.

Buyback activity continues in Q2/23, although buybacks will be suspended for the remainder of 2023 given the pending STGT acquisition. Gibson Energy repurchased 1.0 million shares for $21.5 million (average price of $22.30/share) in Q2/23. Year-to-date, the company repurchased 2.1 million shares for $48.4 million (average price of $22.91/share). Given the pending STGT acquisition, the company has suspended its buyback program for the remainder of 2023, while noting that buybacks will be re-assessed as part of the annual budgeting process for 2024.

Financial ratios are below the low-end of the company's respective target ranges. Gibson Energy ended Q2/23 with a trailing 12- month DCF payout ratio of 55% (versus its long-term payout ratio target of 70-80% of DCF) and net debt/EBITDA of 2.5x (versus the company's target of 3.0-3.5x).

Conference Call: Tuesday, August 1 at 9:00 AM (ET)

The dial-in number is [phone]