Desjardins Securities has upgraded its rating and boosted its target price on AltaGas Ltd. (ALA-T) after the company's North Pine facility was sanctioned.
"We believe AltaGas has taken a significant step towards its vision of a liquids hub in the Fort St. John area of B.C., which will presumably be combined with NGL exports off west coast Canada (assuming the Ridley terminal is sanctioned)," said Desjardins analyst Justin Bouchard.
"We believe ALA is moving in the right direction with its liquids hub in the Fort St. John area. The next step is the FID [final investment decision] on the Ridley Island propane export terminal in Prince Rupert; we view project sanctioning as a forgone conclusion. Combined, these two assets should provide a compelling value-proposition alternative for producers. We thus believe the strategy will provide numerous bolt-on investment opportunities (with relatively attractive return profiles) for ALA as liquids production grows in the Montney and producers are enticed by its unique midstream offering. Further, as liquids prices continue to recover, ALA should see an uplift to cash flow — both via increasing dividends from Petrogas and a wider NGL [Natural gas liquids] fractional spread [the difference between the revenue from the sale of natural gas liquids (NGLs) if removed from a gas stream and the value they would have had if left in the gas stream and sold at natural gas prices]. And while ALA might be in a less favourable recontracting position with regard to its Gordondale plant, the facility is new (efficient) and in a solid location; as a result, we view the risk to cash flow from recontracting as limited."
"Accelerating growth, a 6 per cent dividend yield and a BBB credit rating" all contributed to his decision to upgrade his rating to "buy" from "hold", and to boost his price target to $38 from $34. The analyst 12-month price target consensus is $35.33, according to Thomson Reuters.