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:

• Impressive dividend yield: The stock of TRP carries a dividend yield of ~5.43% on an annualized basis, which looks attractive considering the futuristic interest rate scenario. Additionally, the company reported a higher dividend distribution of CAD 3,317 million in FY21, as compared to CAD 2,987 million in FY20.

• Robust profitability margins: In Q4FY21, the company reported EBITDA margin and operating margin of 61.7% and 46.3%, respectively, as compared to the industry median of 47.1% and 27.7%, respectively. This indicates higher operational efficiencies and prudent cost management. Moreover, the company’s net margin stood higher at 32.3% in Q4FY21, as compared to the industry median of 12.9%, which is a key positive.

• Foray into 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. The revenue growth was 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 company reported 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 company has secured CAD 24 billion of commercially secured capital projects, which are expected to be completed by 2027. These projects are expected to expand its asset footprint across North America and are expected to generate attractive prospects on a long-term basis.

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, Enterprise Products Partners LP etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock on the closing price of CAD 66.25 on February 22, 2022.

One-Year Technical Price Chart (as on February 22, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.