Morningstar | Inter Pipeline Acquires European Storage Business; Strong 7.9% Yield in the Stock
No-moat Inter Pipeline agreed to acquire 9.1 million barrels of hydrocarbon storage from NuStar Energy for CAD 354 million. Management expects the transaction to close during the fourth quarter of 2018. Inter Pipeline will receive 321 storage tanks located in Amsterdam, Netherlands, and the United Kingdom. The deal increases Inter Pipeline’s storage capacity to 37 million barrels, and we expect it to add approximately CAD 40 million in incremental annual EBITDA.To finance the transaction, the company will issue 9.62 million common shares for total proceeds of CAD 200 million and use its available liquidity. With the offsetting impact of the share issuance and the increased cash flow from the acquired assets, we are maintaining our CAD 25 fair value estimate. Shares are now trading near CAD 21 per share after the recent sell-off in equity markets, and the stock remains in 3-star territory. However, the stock offers an annual divided of CAD 1.68 per share, which equates to an attractive 7.9% yield at the current level. Overall, Inter Pipeline is in a strong position to benefit from the growing oil sands production in Canada while rewarding investors with an industry-leading dividend. Inter Pipeline offers investors an elite dividend stock to add to their portfolio.
For a detailed look into the Canadian crude and pipeline trends, please refer to our September Energy Observer, "Don't Overlook Oil Sands: Falling Costs and More Infrastructure Will Make Canadian Production Globally Competitive."
Inter Pipeline is engaged in the business of of petroleum transportation, bulk liquid storage and natural gas liquids (NGL) extraction through the ownership and operation of energy infrastructure assets in western Canada, the U.K., Denmark, Germany, Ireland and Sweden. Co. has four operating business segments that are reportable segments: the oil sands transportation business segment; the conventional oil pipelines business segment; the bulk liquid storage business segment; and the NGL extraction business segment.
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