Morningstar | Pembina Continues to Expand Its Growth Portfolio
Narrow-moat Pembina Pipeline generated fourth-quarter adjusted EBITDA of CAD 715 million, a 6% year-over-year increase, but a 4% decrease sequentially. Adjusted EBITDA came in below our expectations, driven by worse-than-expected results from the Veresen assets and lower-than-expected volumes in the pipelines and facilities divisions. Adjusted cash flow from operating activities for the quarter was also below our expectations, coming in at CAD 543 million, but up 9% from the year-ago period. More important, adjusted operating cash flow per share increased to CAD 1.07 from CAD 0.99, representing value added since the Veresen acquisition. The increased year-over-year performance was driven by the acquisition of the Veresen assets and higher pipeline and gas service volumes.The company also announced that it plans to undertake an additional CAD 3 billion in expansion projects, including the Phase VIII Peace Pipeline and a PDH/PP facility joint venture. We don’t expect these projects to be fully placed in service until 2023, but they provide longer-term growth opportunities. In the meantime, Pembina announced its 2019 adjusted EBITDA guidance in the range of CAD 2.8 billion-CAD 3 billion, which is slightly above our expectations.
We plan to incorporate the company’s fourth-quarter results into our model shortly, but for now we are maintaining our $33 (CAD 43) fair value estimate and our narrow moat rating.
For a detailed look into the Canadian crude and pipeline trends, please refer to our January Energy Observer, "Pipelines Are Canada’s Lifelines."
Pembina Pipeline has four operating segments: conventional pipelines business, which is a tariff-based operation consisting of pipelines and related facilities that deliver crude oil and natural gas liquids; oil sands and heavy oil business, which consists of the Syncrude Pipeline, the Cheecham Lateral and the Horizon Pipeline; midstream and marketing business, which consists of Co.'s direct and indirect interest in a storage operation, its direct interest in terminals, storage and hub services under a mixture of short, medium and long-term contractual arrangements; and gas services business which consists of natural gas gathering and processing facilities.
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