Morningstar | IPL Updated Forecasts and Estimates from 02 Jan 2019
No-moat Inter Pipeline reported third-quarter results that generally exceeded our expectations. The company reported adjusted funds from operations of CAD 300 million an 11% increase from the year-ago period and up 15% sequentially. Increased performance was driven by strong performance from the natural gas liquids processing business, which benefited from increased production volumes and frac-spread pricing, and increased oil sands pipeline transportation volumes. Total oil sands throughput averaged 1.227 million barrels of oil per day, up 7% from the year-ago ago quarter and 4% sequentially. Increased throughput was driven by higher diluent deliveries to the Foster Creek, Christina Lake, and Kearl oil sands projects.Inter Pipeline increased its monthly dividend by 1.8% to CAD 0.1425 per share. Annualized, the dividend amounts to CAD 1.71 per share, compared with CAD 1.68 per share.
Despite the better-than-expected performance, our long-term forecasts remains intact. Accordingly, we are maintaining our CAD 25 fair value estimate and no-moat rating. Shares are trading above CAD 23 per share, and the stock looks fairly valued. However, the stock offers an annual divided of CAD 1.71 per share, which equates to a 7.5% yield. 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 despite the lack of upside.
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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