AltaGas praised for call on Ridley terminal

AltaGas Ltd.’ s positive final investment decision on its Ridley Island Propane Export Terminal ( RTI) received praise from analysts, as it’s a major component of the company’s growth program for 2017 and is accretive to earnings.

Located near Prince Rupert, B.C., the terminal will be designed to ship 1.2 million tonnes of propane per year, and has the potential to benefit AltaGas shares beyond it simply being a new project.

It is expected to cost between $ 450 million and $500 million.

Robert Catellier at CIBC World Markets noted that successful execution will bolster AltaGas’ northeast B.C. strategy and integrate other parts of its gas business.

The analyst believes that may eventually produce a lower risk profile and multiple expansion for the stock.

Catellier upgraded AltaGas to outperformer from neutral, and raised his price target to $37 from $35.

“In addition to being accretive in its own right, this investment is strategic in tying various parts of the gas business together,” the analyst said, noting that the company’s frack spread exposure can benefit from the higher of North American or Asian prices.

Linda Ezergailis at TD Securities estimates that the project could generate an additional seven to 18 cents in adjusted f unds f r om operations per share, and adjusted earnings per share of one to six cents.

Raising her target price on AltaGas shares to $ 37 from $ 36, the analyst suggested the terminal could add around 75 cents to $2 in share price value.

“RTI is a major step in executing AltaGas’ vision of offering producers in northeast B.C. a complete energy value chain with new access to premium Asian markets for their propane,” Ezergailis said.

Dirk Lever at AltaCorp Capital, who hiked his price target on AltaGas shares to $36 from $35, estimates RTI will generate 17 to 26 cents per share in f unds f rom operations.

The analyst believes the company’s intention to connect existing and proposed infrastructure in B. C. and Alberta, combined with the RTI approval and recent sanctioning of the North Pine Facility, bode well for its liquids separation facility.

AltaGas is in the process of developing the Deep Basin Separation Facility, which will serve producers in northwest Alberta.

“AltaGas continues to focus on enhancing productivity and growing its business,” Lever said.

“The Company has a number of key projects in development, which upon a positive Final Investment Decision, could have us revise our estimates upward.”

David Noseworthy at Macquarie Capital estimates AltaGas’ 70- per- cent ownership stake in the pro- ject implies a building cost of about $350 million, and it will generate approximatel y $ 70 million i n annual EBITDA.

“We do not expect AltaGas to require external equity to finance its 2017 capital expenditure,” the analyst said, estimating that the company has more than $ 1.5 billion of available liquidity in 2017.

However, Noseworthy does expect AltaGas to halt its dividend reinvestment program at the end of the first quarter.

If the company does sec ure a power- purchase agreement for a new power generation facility in California, the analyst believes external equity will likely be required by early 2018.

Alternatively, he thinks AltaGas may decide to keep its DRIP active beyond the first quarter.

“The Ridley Terminal is the piece of infrastructure that is truly unique in Western Canada and difficult to replicate,” Noseworthy said. “Furthermore, it is the only piece of infrastructure that provides access to higherpriced Asian LPG markets.”