CIBC comments TC ENERGY CORPORATION Q2/22
First Look: EPS Beat But Equity Needed For CGL
Q2 Results Mostly In Line: Comparable EBITDA at $2.369B outperformed our estimate of $2.189B and consensus of $2.308B.
Comparable EPS of $1.00 also beat our estimate of $0.93 and consensus of $0.97.
Power and Storage was a large outperformer, as Bruce Power planned outages were completed ahead of schedule and a previously disclosed ~$10/MWh increase in the contract power price benefited results.
The Mexico Gas Pipelines also outperformed largely due to the stronger U.S. dollar and weaker Mexican Peso. Liquids Pipelines were mostly in line with expectations.
Revised LNG Canada Agreement But New Equity Injection Needed:
The company signed revised agreements with LNG Canada that incorporate a revised cost estimate for Coastal GasLink of $11.2B. This is significantly higher than the $6.6B originally budgeted. Funding of the increased cost will be supported by an expansion of the existing project-level credit facilities and an equity contribution by TC Energy of $1.9B to be paid in installments with no change to the 35% ownership.
This is a bigger equity requirement than we anticipated. Despite the project earning a return on the revised cost amount, we believe it will be difficult for the company to achieve targeted returns. It also requires the DRIP to be resumed (at a 2% discount) for a year starting in July 2022. Total equity contributions to the project are $2.1B. Following the revised agreements, the Coastal GasLink project-level credit facilities will be increased by $1.6B up to a total of $8.4B. The total temporary interim financing provided by TC Energy of $3.8B will be stepped down over time as the project-level credit facilities are increased and the $1.9B equity is paid.
Highlights: • The CGL project is currently approximately 70% complete with over 320km of pipeline installed and mechanical in-service expected by the end of 2023.
• The company has finalized contracts for approximately 580 MW and 240 MW from the wind and solar projects, respectively. The company will continue to evaluate the proposals received through the RFI process and expects to finalize additional contracts in 2022.
• No updates were provided on a potential new Mexican pipeline as has been indicated by the Mexican regulator, the CFE. T