While he acknowledges its focus on M&A is likely to be a lingering overhang for its shares, Credit Suisse analyst Andrew Kuske thinks Pembina Pipeline Corp. (PPL-T) core business “should be front row centre for investors.”
In a research note released Wednesday, he lowered his rating for the Calgary-based company to “neutral” from “outperform” after resuming coverage following its attempt to acquire Inter Pipeline Ltd.
“Historically, PPL’s M&A approaches have been disciplined with larger deals (e.g. Provident, Veresen and Kinder Morgan Canada) achieving corporate objectives and longer-term value,” he said. “To us, the specific failed M&A was unique and PPL played a White Knight without an early mover advantage. So, the M&A focus for some looks inappropriate at this time – especially when a number of other development opportunities exist.”
Pointing to “positive” mid-year updates from Pembina and other regional energy infrastructure companies, Mr. Kuske emphasized an advantageous volume and margin environment in Western Canada is positive, adding: “In addition to these dynamics, opportunities associated with the Alberta Carbon Grid (ACG) look to be very well placed as outlined in our work (Compelling Carbon Capture Considerations and Carbon Capture In Conversation). Ongoing export efforts with the Cedar LNG Project and a partnership for Trans Mountain System opportunities look to provide upside and optionality.”
He bumped up his target for Pembina shares to $46 from $42, exceeding the $41.88 average on the Street.
“PPL’s midstream assets in key WCSB plays underpin critical energy infrastructure with growth opportunities from network expansion. Following a strong move in regional commodity prices, our energy infrastructure bias shifted to larger caps versus the more regional stocks – to a certain degree – PPL straddles both groups,” said Mr. Kuske.