Morningstar | Inter Pipeline Misses Our Expectations but Still Represents a Strong Dividend Play
No-moat Inter Pipeline reported first-quarter results that missed our expectations, with adjusted funds from operations of CAD 212 million, down 17% from the year-ago period and 23% sequentially. The decreased performance was driven by lower volumes on the company’s oil sands and conventional crude pipelines and lower performance from the natural gas liquids processing business. Total oil sands throughput averaged 1.2 million barrels of oil per day, down 6% from the year-ago ago quarter and 1% sequentially. The decrease in throughput was driven by lower production from oil sands operators as a result of Alberta’s mandatory production cuts.Inter Pipeline maintained its monthly dividend of CAD 0.1425 per share. Annualized, it amounts to CAD 1.71 per share and is yielding 8.3%--the best in the Canadian midstream subsector. The stock is down almost 1.5% on the weak quarter, and we see this as a quality entry point for investors to add an elite dividend play with about 20% upside to their portfolio.
We plan to incorporate the financial results into our model shortly, but for now, we don’t expect a material change to our CAD 25 fair value estimate.
For a detailed look into Canadian crude market and pipeline trends, please refer to our January Energy Observer, "Pipeline Expansions Are Canada’s Lifelines."
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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