Following “strong” second-quarter operational and financial results as well as increased to its full-year guidance, RBC Dominion Securities analyst Robert Kwan reaffirmed Pembina Pipeline Corp. (
) as “the best idea” in his coverage universe “owing to its expansive integrated footprint that is well-positioned to benefit from growing Western Canada Sedimentary Basin (WCSB) oil and gas production, evidenced by several contractual ‘wins’ and accretive acquisitions over the past 12-18 months.”
“On top of a strong strategic and operational position, we expect Pembina to maintain a solid financial position, including debt/EBITDA in the 3.5 times range and an AFFO payout ratio of roughly 50 per cent,” he added in a research note titled The beat goes on.
Mr. Kwan thinks the company’s new 2024 earnings before interest, taxes, depreciation and amortization (EBITDA) guidance of $4.2-$4.35-billion, up from $4.05-$4.3-billion, “seems conservative,” and sees “upside as the year continues to unfold.”
“The company attributed the increased guidance to a higher contribution from its NGL marketing business, the acquisition of an incremental interest in Aux Sable, a higher contribution from PGI, stronger Nipisi volumes, and lower corporate costs,” he said. “Volume-wise, Pembina expects annual 6-per-cent growth in conventional pipelines volumes and 4-per-cent growth for gas processing volumes.”
Mr. Kwan raised his 2024 EBITDA forecast to $4.328-billion from $4.190-billion, which sits near the top-end of the revised guidance range. His 2025 estimate jumped to $4.552-bilion from $4.404-billion. His adjusted funds from operations per share projections rose to $5.45 and $5.54, respectively (up from $5.21 and $5.39, respectively).
“Key drivers behind the increase in our EBITDA estimates include the better-than-expected Q2/24 results, the Aux Sable acquisition, and modestly lower corporate costs,” he said. “For AFFO/share, the higher estimates are largely driven by the increase in our forecast EBITDA and lower cash taxes consistent with the change in Pembina’s cash tax guidance for 2024.:
With those changes, his target for Pembina shares moved to $60 from $58 with an “outperform” rating. The average is $56.42.
Pembina Pipeline Corp
53.10+7.48 (16.40%)
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