AltaGas and Pembina both trade at reasonable multiples of their anticipated earnings per share for 2021.
AltaGas Ltd. (TSX—ALA)
As the world moves toward a more decarbonized ecosystem, AltaGas believes its natural gas will play a critical part as the transition fuel of the future. Plus, the company says its ability to deliver lower carbon emitting fuels to Asia through its midstream platform creates potential for it to help lower global carbon emissions.
AltaGas Ltd. is a leading North American energy infrastructure company that connects natural gas liquids and natural gas to domestic and global markets. It operates a diversified utilities and midstream business. Its utilities segment provides natural gas to 1.7 million end-users in the US.
For the year ended Dec. 31, 2020, AltaGas made $396 million (normalized), or $1.42 a share, compared with $347 million, or $1.25 a share, in 2019. The increase was mainly due to higher normalized EBITDA (earnings before interest, taxes, depreciation and amortization), lower interest expense and lower depreciation and amortization expense.
Normalized EBITDA increased 0.6 per cent to $1.3 billion.
AltaGas’ 2020 financial performance and outlook has let it increase its monthly dividend 3.8 per cent to $0.83 a share.
In 2021, AltaGas expects to achieve normalized EBITDA of $1.4 to $1.5 billion. The utilities segment is expected to contribute about 60 per cent of this amount, with growth driven primarily by higher revenue due to previously settled rate cases and other factors.
AltaGas Ltd. is a buy for growth and income.
Pembina Pipeline Corp. (TSX—PPL)
Despite COVID-19, Pembina remained steadfast in 2020 in its assertion that it would remain within its pre-pandemic guidance ranges, albeit near the lower end. It turned out that these targets were exceeded by year end. For example, not only was adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) within guidance range, but almost at the midpoint of the range.
Pembina Pipeline Corp. is a leading transportation and midstream service provider to North America’s energy industry. The company owns an integrated system of pipelines that transport various hydrocarbon liquids and natural gas products produced primarily in western Canada.
Thanks largely to the acquisition of assets from Kinder Morgan in 2019, Pembina’s adjusted cash flow from operating activities (AFFO) rose 2.5 per cent in the year ended Dec. 31, 2020, to $2.3 billion from $2.2 billion a year earlier. AFFO per share, however, declined 4.6 per cent, to $4.16 from $4.36, on more shares outstanding due to the Kinder acquisition.
Adjusted EBITDA was $3.3 billion, up 7.2 per cent. Once again, the Kinder acquisition was a key driver of the increase. Other contributors were three infrastructure projects that came on line in 2019 and 2020, lower operating expenses in the pipelines segment and lower general and administrative expenses.
As COVID-19 is brought under better control, there’s a growing expectation of a return to some normality and associated rising energy demand some time this year. For Pembina, this means it’s optimistic that it will be able to hit the ‘play’ button this year, after hitting ‘pause’ in 2020. By the second half of the year, the company may be able to resume a number of projects it deferred last year due to COVID.
Buy for growth and income.
This is an edited version of an article that was originally published for subscribers in the April 2, 2021, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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