Scotia Capital’s Robert Hope thinks TSX-listed pipeline and midstream group are benefiting from a stronger commodity price environment, which he think will continue through 2022.
In a research report previewing earnings season, he also noted renewable power names “continue to be strong.”
“While they have softened recently, we continue to see strong investor interest in the group. The utility group has also been strong despite the inflationary environment and rising interest rates, as investors find their defensiveness attractive,” he said.
Mr. Hope made a series of target price adjustments:
- AltaGas Ltd. (
, “sector outperform”) to $33 from $31. Average: $32.04. - Algonquin Power & Utilities Corp. (AQN-N/
, “sector perform”) to US$16.50 from US$15.50. Average: US$17.25. - Brookfield Infrastructure Partners LP (BIP-N/BIP.UN-T, “sector outperform”) to US$73 from US$68. Average: US$68.83.
- Emera Inc. (
, “sector outperform”) to $69 from $65. Average: $63.23. - Enbridge Inc. (
, “sector perform”) to $62 from $58. Average: $57.58. - Fortis Inc. (
, “sector perform”) to $63 from $61. Average: $60.25. - Hydro One Ltd. (
, “sector perform”) to $34 from $32. Average: $33.61. - Keyera Corp. (
, “sector outperform”) to $38 from $37. Average: $35.50. - Pembina Pipeline Corp. (
, “sector outperform”) to $54 from $49. Average: $48.83.
“With the strong energy environment, we continue to prefer the more energy exposed midstream and pipeline group over the renewable power producers and utilities,” he said. “For the midstream group specifically, we see the greater potential for estimate revisions upwards as oil & gas producers could slowly return to growth as well as strong NGL marketing conditions. Key beneficiaries of higher NGL pricing are Pembina, AltaGas, Tidewater, and Keyera. For Q1/22, we are slightly ahead of consensus for Pembina. We also see the potential for further valuation expansion of the pipeline and midstream group, and overall, we raise our target prices for Enbridge, Keyera and Pembina. The shares of TransAlta [”sector outperform” and $16.50 target] have had a strong rebound recently, which we attribute to robust Alberta power prices and a rebound in renewable valuations. We continue to like the name and think Q1 will be strong, though not to the extent consensus is pricing in.”