Resuming coverage following
Pembina Pipeline Corp.’s (
PPL-T -0.45%decrease) aggregate $500-million note offering, ATB Capital Markets analyst Nate Heywood thinks it “could explore a return to meaningful growth in the coming years,” pointing to the state of its balance sheet and “solid financing footing” as well as a “supportive commodity environment.”
“The proceeds will be used to increase near-term financial flexibility, largely being directed toward repaying current indebtedness under the Company’s credit facility and for general corporate purposes,” he said. “Overall, we view the balance sheet maintenance as supportive to PPL’s growth outlook, as management continues to build a backlog of potential growth projects. Near-term we expect management to focus on its sanctioned Peace Expansion project, the Nipisi reactivation, and the RFS IV fractionator project. Longer-term PPL is evaluating Cedar LNG, the Alberta Carbon Grid (ACG) project, a Low Carbon Complex, and the potential purchase of Trans Mountain.”
Calling its capital expenditure for 2023 of $800-million “modest,” Mr. Heywood thinks Pembina’s management continues to prioritize balance sheet management and near-term financial flexibility.
“Following a capital disciplined 2020, 2021 and 2022, we view Pembina’s approach to positioning itself for long-term growth and efforts towards diversification as unique investment characteristics given its size and breadth of expertise,” he said. “We remain supportive of PPL’s underpinned fee-based growth initiatives and expect it to increase shareholder returns through the long-term as the dividend is tied to fee-based cash flow growth. With the strengthened upstream sector and improved activity, we are expecting the Company to continue to realize improvements in volumes. We have estimated a 2023 EBITDA outlook of $3.75-billion (Guidance: $3.5-3.8-billion); which provides an EV/EBITDA valuation of 10.2 times, compared to the Canadian midstream average near 10.0 times.”
After “modest” revisions to his forecast, Mr. Heywood maintained a $53 target for Pembina shares with an “outperform” recommendation (previously “restricted”). The average is $52.06.