Post by
hawk35 on Nov 04, 2023 10:43am
RBC Initial Comments
November 2, 2023
Pembina Pipeline Corporation
Quick Take: Strong quarter, a guidance increase and positive commercial updates
TSX: PPL | CAD 43.62 | Outperform | Price Target CAD 58.00
Sentiment: Positive
Our take
There was a lot to like about Pembina's Q3/23 quarterly release, and while expectations (including our own) may have been high heading into the quarter, we believe the results and disclosures exceeded expectations.
Details
Record quarterly EBITDA that was well-ahead of our estimate and consensus. In Q3/23, Pembina's EBITDA was $1.021 billion versus our forecast of $929 million and consensus of $923 million (10 estimates; $896-944 million). AFFO/share was $1.20 in Q3/23 compared to our forecast of $1.19 with higher-than-expected EBITDA being mostly offset by lower-than-forecast cash distributions from Alliance and Aux Sable and non-cash income included in EBITDA.
• Pipelines: EBITDA was $591 million versus our forecast of $561 million with the Conventional Pipeline system posting record quarterly volumes. A little under half of the variance was due to Pembina recognizing a greater proportion of previously deferred revenue versus our forecast.
• Facilities: In Q3/23, EBITDA was $319 million compared to our estimate of $302 million. The variance largely appears to be due to a $16 million gain during the quarter related to a contract renewal of an asset that is now recognized as a finance lease.
• Marketing & New Ventures: EBITDA in Q3/23 was $159 million versus our forecast of $116 million.
• Corporate: Quarterly EBITDA was ($48) million compared to our estimate of ($49) million.
Guidance for 2023 increased by roughly 4%. The new EBITDA guidance range is $3.75-3.85 billion (previously $3.55-3.75 billion), which represents a roughly 4% increase from the mid-point of the prior guidance range to the mid-point of the new guidance range. The new EBITDA guidance range implies Q4/23 EBITDA of $959 million to $1.059 billion, which compares to our Q4/23 EBITDA estimate heading into the quarterly results of $987 million and consensus of $978 million (nine estimates; range of $950 million to $1.005 billion).
Incrementally positive disclosures with respect to contract updates and a reduction in Phase VIII capital costs. Pembina disclosed that it signed new Peace Pipeline contracts for roughly 25,000 b/d with a weighted average term of 5.5 years. Further, the company extended to 2032 an existing 25,000 b/d contract at Redwater that was set to expire in 2027. For the Phase VIII expansion on the Peace Pipeline, the company now expects the capital cost will be $475 million (down from $530 million) with the project remaining on schedule.
Updated messaging pushes the topic of Trans Mountain to the back burner. Pembina noted that neither the company nor its joint venture will be eligible to participate in the first phase of the Canadian government's Trans Mountain divestment process. As it relates to a subsequent phase, Pembina stated that the process is "still undefined" and that a divestment might not occur until the end of 2024 at the earliest. Further, Pembina highlighted "outstanding regulatory, construction and tolling issues that pose further schedule, cost and divestment timing uncertainty". Last, the company stated that it requires clarity on the many outstanding issues before it can appropriately evaluate its next steps.