Morningstar | Keyera Shatters Market Expectations
No-moat Keyera’s fourth-quarter results shattered expectations. The company reported adjusted EBITDA of CAD 248 million, or CAD 1.18 per share, up from CAD 197 million, or CAD 0.97 per share, in the year-ago quarter. Distributable cash flow was also above expectations at CAD 200 million, or CAD 0.96 per share. Distributable cash flow was also up from CAD 174 million, or CAD 0.90 per share, during the fourth quarter of 2017. Better-than-expected performance was driven by record performance from the marketing segment, liquids infrastructure growth projects, and increased demand for condensate services.Keyera intends to continue its upward trajectory by investing CAD 800 million-CAD 900 million in 2019 to advance its growth projects, including Simonette, Wapiti, and Pipestone gas plants and its Wildhorse Terminal.
The stock is up 8% on the strong earnings report and is now trading in line with our CAD 31 fair value estimate. We expect to incorporate these results shortly, but for now, we are maintaining our fair value and no-moat rating.
The company also increased its quarterly dividend to CAD 0.45 per share, a 7% increase from the year-ago quarter. On an annualized basis, the stock is yielding 5.8%, which is below most Canadian midstream peers.
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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