Morningstar | Pembina's First Quarter Exceeds Our Expectations
Narrow-moat Pembina Pipeline generated first-quarter adjusted EBITDA of CAD 773 million, a 12% year-over-year increase and an 8% increase sequentially. Adjusted EBITDA came in above our expectations, driven by a better-than-expected contribution from Pembina’s growth projects that were placed into service during 2018. Adjusted cash flow from operating activities for the quarter was also above our expectations of CAD 551 million, coming in at CAD 578 million. The adjusted cash flow was up 9% from the year-ago quarter. More important, adjusted operating cash flow per share increased to CAD 1.52 from CAD 1.34, representing value added since the Veresen acquisition. The increased year-over-year performance was driven by the acquisition of the Veresen assets, contributions from growth projects that were placed into service during 2018, and higher pipeline and gas service volumes.Pembina’s board of directors increased the company’s monthly dividend by 5.3% to CAD 0.20 per share, which is what we expected. On an annualized basis, the stock carries a 5.1% dividend yield. However, the yield sits on the lower end of the spectrum compared with other Canadian midstream peers.
We plan to incorporate the company’s first-quarter results into our model shortly, but we don’t expect any material changes to 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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