Capital Growth Program to Aid Business Growth: TC Energy Corporation (TSX: TRP) operates in natural gas and crude oil pipelines, along with power generation and storage facilities. The company has more than 93,300-kilometre network of natural gas pipelines and 4,900-kilometreliquids pipeline system across the key markets and refineries. On 31^st March 2020, the company announced upcoming construction of the Keystone XL Pipeline Project with an investment of ~US$8.0 billion into the North American economy.

TC Energy declared a quarterly dividend of CAD 0.81 per common share (CAD 3.24 on an annual basis), which implies a y-o-y growth of 8%. Investors should note that the company has a strong history of enhancing shareholders’ returns through higher dividends. Including the recent dividend hike, the company has increased its dividends for the 20^th consecutive year, which is encouraging. Further, the company expects dividend to increase by 8% to 10% in the near future.

The company is intending for a capital program of ~CAD30 billion of secured projects, which include commercially supported, committed projects, which are in progress or preparing to commence the permitting stage. During FY19, the group placed a ~CAD8.7 billion of projects into service while secured CAD 3.2 billion of new projects. 

Outlook: For FY20, the company expects ~CAD 8 billion of capital spending mainly on account of NGTL System expansion, Columbia Gas upgrading projects, an extension program of the Bruce Power life. The group also expects normal course maintenance capital expenditures and the Coastal GasLink pipeline project. The company is expected to sell 65% stake in Coastal Gas Link and sale of Ontario natural gas-fired power plants for CAD 2.87 billion. Both the transactions are expected within the first half of FY20.

FY19 Operational Highlights: For the period ended 31^st December 2019, TRP posted decent set of numbers. The company’s comparable earnings per common share grew 7% y-o-y to CAD 4.14 per common share. EBITDA grew 9% on y-o-y basis to CAD9.4 billion. The increase in the earnings was driven by growth from Columbia Gas and Columbia Gulf growth projects, which was partially offset by lower earnings from Bison contract terminations. The company witnessed higher contribution from Power and Storage segment driven by a higher realized power price

FY19 Financial Highlights (Source: Company Reports)

Valuation Methodology: EV/EBITDA - Based Relative Valuation

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: The stock of TRP is quoting at CAD 62.55 with a market capitalization of ~CAD 58.69 Billion. The stock corrected by ~15.06% in the last six-months while bounced back and delivered ~20.27% return during the last five trading sessions, outperforming the index by 3.57%. Going forward, the group intends to strengthen the balance sheet by completing the sale of CAD 3.4 billion of asset and is focused on advancing its CAD 30 billion secured capital program and over CAD 21 billion in projects under development. The company supplies ~25% of North America’s Gas supply, while delivers ~20% of western Canadian exports to the U.S. Midwest and Gulf Coast. We expect, the company will retain its market share and income from the North American Market and is expected to deliver stable cash flows. The company has consistently paid dividend and increased the same from the past 20 years. The current dividend yield stands at 5.18%, which looks attractive. We have valued the stock with EV/EBITDA based relative valuation method with a target EV/EBITDA multiple of 12.2x. We have taken peers like Fortis Inc (TSX: FTS), Newjersey Resources Corp (NYSE: NJR), Cheniere Energy Inc. (NYSE: LNG) and arrived at a target price of low double-digit upside (in% terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 62.55 as on 31^st March 2020.

TRP Daily Price Chart (Source: Thomson Reuters)

Disclaimer

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