Post by
incomedreamer11 on Nov 23, 2021 9:33am
CIBC comments
PEMBINA PIPELINE CORPORATION Downgrade While Waiting For Guidance Our Conclusion
We are downgrading Pembina Pipeline Corporation from Outperformer to Neutral while maintaining our $44 DCF-based price target. The relatively low return to our price target and sudden departure of President and Chief Executive Officer Mick Dilger cause us to take a more conservative view of the shares.
Our view is there may be a significant difference of opinion with the board on strategy which led to an immediate step-down with no transition period. As a result, we would be more comfortable on the sidelines until at least 2022 guidance or a clarification on strategy is provided.
Key Points Difference Of Opinions: The announcement of Mick Dilger’s departure comes quite suddenly, with Mick leaving the role without any transition period announced. We do not see this development as a result of any specific event, but it is possible there was a difference of opinion with the board with respect to strategy. The issue at stake would have to have been important to not be able to bridge the gap. We believe Mick was less aggressive in wanting to pursue basin diversification, but differing views on energy transition are also a possibility, not to mention the recent attempt at acquiring IPL. Mick is 58 years old, and was still intensively engaged with the company’s various stakeholders. We did not expect him to step down for a few years, and even then with the view of retiring as opposed to pursuing other opportunities.
Financial Strategy Still In Place: Although the news comes as a surprise, the company has reasonable depth, and the culture is also deeply rooted. We expect financial "guardrails" to remain in place, with no change to financial strategy. Potential changes to business or growth strategy will only be known in the fullness of time. The company reiterated 2021 full-year guidance at adjusted EBITDA of $3.3 billion - $3.4 billion. The company is also planning to release 2022 guidance and its capital budget on December 7 after markets close, and plans to hold a conference call on the morning of December 8. The call will also cover ESG and other updates on Pembina’s business. More details to come.
Interim Leadership Announced: Scott Burrows, Pembina's current Chief Financial Officer, has been named as interim President and Chief Executive Officer by the Board of Directors. The company plans to work with a search firm to identify internal and external candidates for a new CEO. Cameron Goldade, Pembina's Vice President Capital Markets, has also been appointed interim Chief Financial Officer. Having covered the company for a long time, we are comfortable with both of these new roles, and our call has more to do with valuation and sudden transition than the new appointments.
Future Details Crucial With the announcement likely coming as a surprise to many, future clarification on long-term strategy remains key. Even though strategy may have evolved and changed without a CEO transition, changes to business and growth strategy become far more critical in light of it. The 2022 guidance and capital budget release on December 7 after markets close and conference call on the morning of December 8 will be events to closely monitor. That said, we are not concerned over the guidance. Assets and hedging that impact guidance are already in place, so there are no changes to our estimates at this time. Any changes to strategy are likely to have longer-term impacts rather than materially alter near-term results. The two most significant recent events are the failed attempt to acquire IPL and the release of the company’s ESG goals. As a result, we think these areas could be the most likely to be the source of any possible disagreement with the board, conceivably with the board wanting a more rapid transition to low-carbon projects, in our opinion. We will only know in the fullness of time, but prefer some clarification before becoming more aggressive on the stock.