Gibson Energy Inc T.GEI

Scotia comments

[incomedreamer11]

Initial Take: Strong Infrastructure Results Support Outperform Thesis

OUR TAKE: Slight Positive. Gibson's Q3/23 adj. EBITDA of $150m was in-line with our estimate of $150m and slightly ahead of consensus of $147m (range $135m-$155m). Management noted that Infrastructure results were above expectations, which we view positively. Distributable cash flow per share of $0.60 was above our $0.53 estimate and consensus of $0.54 (range $0.50-$0.60) it appears as a result of lower cash taxes which declined due to acquisition and integration costs that we exclude from adjusted EBITDA and distributable cash flow (DCF).

Overall, we have a favourable view on the quarter as we believe it highlights a number of core themes that support our recent upgrade to Sector Outperform (link). Specifically, these include its (1) strong balance sheet and easy-to-execute funding plan, (2) low payout ratio and very secure ~7.5% dividend yield, and (3) improved growth outlook. We don't expect much movement in our longer-term estimates. Our $25.00 target price implies a ~9.5x EV/2025E EBITDA multiple, versus 2024E trading levels of 8.9x. The conference call is tomorrow at 9 a.m. ET, dial-in: 1-888-664-6392.

KEY POINTS

Infrastructure EBITDA of $140m was ahead of our estimate of $132m and consensus of $131m. Management noted that results exceeded their expectations for the quarter. The segment benefited from strong loading at South Texas Gateway Terminal, as well as a solid contribution from the legacy business. Construction is progressing on time and on budget for the 435k bbl tank at Edmonton with an in-service date of Q4/23, as well as the two recently sanctioned tanks contracted with Cenovus with in-service dates towards the end of 2024.

Marketing EBITDA of $24m was below our $30m estimate and management’s Marketing guidance of ~$25m+ for the quarter. Headwinds included refined product margins as well as the timing of certain opportunities that have slipped to Q4.

Key questions for the call. We will look for any updates and additional commentary on the company’s recent acquisition of the South Texas Gateway Terminal, including progress on contracts with customers, and tanks under construction.