TC Energy Corp (TSX: TRP) is an energy infrastructure company, which operates through a pipeline and power generation assets in Canada, the United States, and Mexico. The company’s pipeline network includes more than 92,600 kilometers of natural gas pipeline, along with 4,900 kilometers from the Keystone Pipeline system. 

Key Highlights:

• Sell of Stake at in the Coastal GasLink Pipeline Limited Partnership: The company recently announced its sell of 10% equity interest in the Coastal GasLink Pipeline Limited Partnership to Indigenous communities across the project corridor. 

• Robust profitability margins: In FY21, the company reported EBITDA margin and operating margin of 63% and 23.4%, respectively, as compared to the industry median of 43.4% and 25.2%, respectively. This indicates higher operational efficiencies and prudent cost management. Moreover, the company’s net margin stood higher at 15.3% in FY21, as compared to the industry median of 10.7%, which is a key positive.

• Focusing on the Renewable segment: In order to cater to the growing demand for renewable energy sources, the company is identifying potential investments within the wind, solar and power storage renewable energy projects. Notably, during FY21, the company proposed of commencing ~620 MW of wind energy projects, 300 MW of solar projects and 100 MW of energy storage projects, in order to meet the electricity needs in U.S.

Q4FY21 Financial Highlights:

Q4FY21 Income Statement Highlights (Source: Company Report)

• TRP announced its quarterly results, wherein the company posted its revenue of CAD 3,584 million in Q4FY21, stood higher than CAD 3,297 million in pcp. The growth was driven by higher income from U.S. Natural Gas Pipelines, Liquids Pipelines operations and Power and Storage segments. These growths were partially offset by a slide in income from Canadian Natural Gas Pipelines segment (CAD 1,145 million in Q4FY21 v/s CAD 1,188 million in pcp)
• The quarter was marked by slightly higher Plant operating costs and other costs and an increase in the Property taxes expense. Additionally, interest expense stood higher at CAD 611 million in Q4FY21, as compared to CAD 530 million in pcp.
• The group posted its net income of CAD 1,158 million in Q4FY21, as compared to CAD 1,232 million in pcp. The decline was primarily due to the above-mentioned reasons coupled with higher income taxes.

Valuation Methodology (Illustrative): Price to Cash flow based

Analysis By Kaline Group

Stock Recommendation:

The stock of TRP carries a dividend yield of ~4.974% on an annualized basis, which looks attractive considering the futuristic interest rate scenario. We have valued the stock using the Price to Cash flow-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Enbridge Inc, Western Midstream Partners LP etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the last closing price of CAD 72.37 on April 13, 2022.

One-Year Technical Price Chart (as on April 13, 2022). Analysis by Kalkine Group

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