BMO analyst Ben Pham raised his target price on South Bow Corp. (SOBO-T) to C$36 from C$31. Even though the TC Energy spinoff’s third quarter results were a slight miss to his expectations, sector sentiment has been positive and shares are doing better than he thought they would.
He reiterated a “market perform” rating while raising his target multiple to 10x EBITDA from 9.5x.
“Since shares spun off on Oct. 1, performance has surprised to the upside on what we attribute to the combination of lower interest rates, U.S. election results, and generally positive sector sentiment,” Mr. Pham said in a note. “The highly contracted business mix and stability of cash flows support the inaugural dividend, with modest organic growth driving gradual deleveraging.”
Mr. Pham noted that Sow Bow’s inaugural quarterly dividend of US$0.50/share, payable to all shareholders of record on Dec. 31, 2024, will be payable in U.S. dollars, instead of initial messaging for Canadian dollars. All subsequent dividends are expected in U.S. dollars, which is in line with previous guidance.
Last week South Bow reported Q3/24 adjusted EBITDA of C$357 million, which was a slight miss to BMO’s C$365M estimate. “The variance to us was driven by lower liquids marketing margins following startup of TMX, which more than offset higher volumes on the USGC section of Keystone,” the analyst said.