Morningstar | Lowering Inter Pipeline's FVE, but We Still See 15% Upside
After taking a fresh look at Inter Pipeline’s first-quarter results, we are lowering our fair value estimate to CAD 24 from CAD 25 and maintaining our no-moat rating. Our lower fair value is driven by our decreased near-term outlook for the company’s oil sands and conventional pipelines as a result of Alberta’s production cuts. Despite the lower fair value, we still see 15% upside in the stock. 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 8.3% dividend.No-moat Inter Pipeline reported first-quarter results that missed our expectations, with adjusted funds from operations of CAD 212 million, a 17% decrease from the year-ago period and down 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 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.
For a detailed look into Canadian crude market and pipeline trends, please refer to our January Energy Observer "Pipelines 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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