Morningstar | Keyera Misses Our Expectations; Stock Looks Fairly Valued
No-moat Keyera reported disappointing first-quarter results that missed our expectations. The company reported adjusted EBITDA of CAD 164 million, or CAD 0.78 per share, down from CAD 189 million, or CAD 0.92 per share, in the year-ago quarter. Distributable cash flow was also below our expectations at CAD 108 million, or CAD 0.51 per share and down from the first quarter of 2018, which was CAD 155 million or CAD 0.75 per share. The worse-than-expected performance was driven by a sharp decline in the marketing segment, which generated an operating margin loss of CAD 18 million. The loss was attributable to lower iso-octane contribution resulting from an unplanned outage at the Alberta Envirofuels. Despite the down quarter, Keyera expects a full-year contribution from the marketing segment in the CAD 280 million-CAD 320 million range, which is below our current full-year forecasts.Keyera continues to advance its CAD 2.9 billion growth portfolio, including its Key Access Pipeline System, its Sulphur handling project, and its Simonette, Wapiti, and Pipestone gas plants. Accordingly, the company still expects to invest CAD 800 million-CAD 900 million in growth projects this year, which is in line with our current forecasts. To fund this growth, Keyera could issue debt, hybrid notes, or preferred shares, which we think is necessary. However, the company doesn’t intend to issue common shares outside of its dividend reinvestment program.
We expect to incorporate these results shortly, but for now, we are maintaining our CAD 33 fair value estimate and no-moat rating.
For a detailed look into Canadian crude market and pipeline trends, please refer to our January Energy Observer, "Pipelines Are Canada’s Lifelines.â€
Keyera is engaged in the business of operating natural gas midstream businesses in Canada. Midstream entities operate in the oil and gas sector between the upstream sector, which includes oil and gas exploration and production businesses, and the downstream sector, which includes the refining, distribution and retail marketing of finished products. Co. is organized into two integrated businesses, (i) The Gathering and Processing Business Unit which Co. is engaged in owning and operating raw gas gathering pipelines and processing plants and (ii) The Liquids Business Unit consisting of natural gas liquids infrastructure and marketing.
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