Post by
incomedreamer11 on Oct 31, 2023 9:11am
CIBC comments
Q3/23 First Look: EBITDA In Line; Focus On Managing Risks
EBITDA was largely in line with expectations (+1.9% versus us and 1.2% versus consensus) as slightly weaker marketing results were offset by a small infrastructure beat due to initial contributions from the Gateway Terminal.
Infrastructure Slight Beat: The segment adjusted EBITDA of $139.9MM beat our estimate of adjusted EBITDA of $132.3MM by 5.7%. While the Gateway Terminal contribution wasn’t specifically broken out, we attribute the beat to its strong results, partially offset by reduced throughput at the Edmonton and Hardisty Terminals. We had expected some headwinds moving forward, due to contract expirations at Hardisty that could impact pipeline fees received.
Marketing: The segment came in weaker than expected at $24MM of adjusted EBITDA compared to our estimate of $26.5MM (-9.7%) and just a tick below the previous guidance of at least $25MM. This is also down from $34.4MM in Q2, as expected due to lower average prices for crude oil, refined, and other products. Marketing volumes remained strong, increasing 10% Y/Y. Crude oil marketing opportunities generally lack visibility and refining margins are inherently volatile.
Results: Adjusted EBITDA of $149.6MM (excluding $20MM of transaction costs) was just ahead of our estimate of $146.8MM (+1.9%) and consensus of $147.8MM (+1.2%). Reported AFFO was $93MM ($0.60/share) compared to our estimate of $86.5MM ($0.56/share) and consensus of $0.54/share.
Gateway Terminal: During the quarter the company successfully closed US$1.1B Gateway Terminal and related financings. The company is now advancing initiatives to de-risk the terminal. To this end, it has entered into US$120MM of U.S. dollar forward contracts expiring over the next two years to mitigate foreign exchange fluctuations in the terminal’s results. Currently between two-thirds and 80% of first-year and one-third of second-year free cash flow from the Gateway Terminal has been hedged. The next focus item will be executing contract extensions.
Capital Allocation: The company paused share repurchases during the quarter as expected due to the Gateway Terminal acquisition. The NCIB has been renewed for an additional year to September 15, 2024 for potential future use in 2024. Net debt to adjusted EBITDA of 4.0x (excluding hybrids) is now above the high end of the company’s target of 3.0x-3.5x and is expected to remain temporarily elevated until twelve months of Gateway Terminal contributions can be reflected. Pro forma the Gateway acquisition, leverage was 3.1x excluding hybrids (we estimate 3.5x with hybrids at 50%). TTM AFFO payout ratio is 61%, still below the lower end of the targeted 70%-80% range.