Key Morningstar Metrics for Pembina Pipeline
- : C$66.00Fair Value Estimate
- : ★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
What We Thought of Pembina Pipeline’s Earnings
Pembina Pipeline PPL posted adjusted EBITDA of C$1.06, in line with the PitchBook consensus. This was the first report since Greenlight Electricity Centre was sanctioned and a partnership with West Coast Pipeline was announced.
Why it matters: The sanctioning of Greenlight is a substantial tailwind to the business, even if it takes the remainder of the decade to stand up.
- If Pembina can leverage this project to win new data center deals at similar terms, Pembina can deploy billions in capital at attractive rates of return. It would also benefit its upstream customers, who will have a way to dispose of gas even if pipelines back up or export demand is weak.
- Management sounded upbeat on a phase 2 expansion, saying there was momentum and commercial interest behind it.
The bottom line: We are increasing our fair value to C$66 per share following an update to our outlook. The major driver was Greenlight, but we also added the Heartland Extraction plant.
- Shares look fairly valued after the increase, trading in 3-star territory.
- Our Morningstar Economic Moat Rating of none, Medium Uncertainty, and Standard Capital Allocation ratings are unchanged.
Long view: The West Coast Pipeline has political and regulatory momentum, but it remains clouded by uncertainty. Shippers on Trans Mountain were surprised by rates after cost overruns. That may prevent commercial momentum.
- Pembina itself was careful to stress that its 10% stake in the project does not represent any capital commitments yet and can still exit the project prior to the pipeline being sanctioned.
- If the pipeline moves forward, the real benefit is to Pembina’s NGL franchise, which will need to grow to serve increasing demand for condensate from oil producers.
