TC Energy Corporation (TSX: TRP) is a Canada-based energy infrastructure company. Its key operating segments include Canadian Natural Gas Pipeline, United States Natural Gas Pipeline, Mexico Gas Pipelines, Liquids Pipelines, and power storage.

Key highlights

• Increase in FY21 revenues: For FY21 the company reported an increase in its total revenues to CAD 13.38 billion from CAD 12.99 billion in FY20. The major impvroevement in revenue is from US Natural Gas pipleines of CAD 5.23 billion in the reported period vs CAD 5.03 billion in pcp.

• EBITA for FY21 : The group showed marginal improvement on the EBITDA front by posting a total EBITA of CAD 9.38 billion in FY21 as compared to CAD 9.35 billion in FY20. The US Natural Gas pipeline recorded a noticeable impriovement in its EBITDA to CAD 3.85 for the reported period from CAD 3.63 billion in pcp.

• Funds raising: On March 7, 2022, the company announced that TransCanada Trust, a wholly-owned financing trust subsidiary of TransCanada PipeLines Ltd. (TCPL), closed a total offering of USD 800 million subordinate notes at 5.6% , guaranteed by TCPL. The proceeds from the offering will be used to reduce the short-term debts and for other corporate purposes. 

• Dividend declaration:On February 15, 2022, the company announced a quarterly dividend of CAD 0.90 per share which will be payable on April 29, 2022, to the shareholders of record at the close of business on March 31, 2022. For the FY21 the dividend declared was CAD 3.48 per share which is 7.4% higher than CAD 3.24 paid in pcp. Below is the graphical representation of the three consecutive years of dividend paid by the company. For full year FY22E, the company gave the dividend guidance of CAD 3.60 per share.    

 Source: Company PPT

• Industry beating margins:The company outperformed on the profitability front by reporting an EBITDA margin of 61.7% for Q4FY21 as compared to the industry median of 47.8%. Further, it lowered its costs of operations which is respectably intimated on its Operating margins of 46.3% for Q4FY21 vs the industry median of 30.6%. The company reported Net Margins of 32.3% for the reported period vs the Industry median of 17.0%.   

Source: REFINITIV, Analysis by Kalkine Group 

Risks associated with investment

The company deals majorly in the energy segment, which is subject to the demand and volatility in the prices. Besides that various other risks which can cause the headwind to its business operations are, damage in the pipelines, planned and unplanned outages and the use of the pipelines, dysfunctioning of power and storage assets, regulatory decisions and outcomes, rising interest rates, etc are few of them 

Financial overview of Q4FY 2021 (Expressed in millions of CAD)

Source: Company Filing 

• Increase in revenues: The company reported an increase of 8.7% in its revenues to CAD 3,584 million in Q4FY21 as compared to CAD 3,297 million in pcp. The major boost was from the revenues from US Natural Gas pipelines and Liquid Pipelines operations which collectively stood at CAD 2,055 million in Q4FY21 vs CAD 1,830 million in pcp.

• Operating and Other expenses: For Q4FY21, the total Operating and Other expenses rose to CAD 1,926 million vs CAD 1,879 million in pcp.

• Income before Income taxes:  For Q4FY21, the company reported Income before Income tax of CAD 1,436 million vs the CAD 1,348 million in Q4FY20.
  

• Net Income: For Q4FY21 the Net Income was reported at CAD 1,158 million vs CAD 1,232 million in pcp.
  

Valuation Methodology (Illustrative): Price to Equity-Based

Analysis by Kalkine Group 

Stock recommendation 

The company delivered a positive return of 9.81% in past one month and 15.75% in the past six months. The group recently announced the proposed offering which will be used to repay its short-term borrowings, a positive sign to get relief from the interest rate payments in the current scenario of rising interest rates. The improved Q4FY21 revenues and earnings in addition to dividend declaration, along with industry beating profitability margins, makes the company a leader in its industry. On the valuation front, the stock is valued on Price to Equity-based multiple and we have considered Enbridge Inc., Enterprise Products Partners LP, Kinder Morgan Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing market price of CAD 71.35 on March 9, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 9, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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