TC Energy Corporation. (TSX: TRP) is a Canada-based energy infrastructure company, consisting of pipeline and power generation assets in Canada, the United States, and Mexico. Its pipeline network consists of over 92,600 kilometers (57,500 miles) of natural gas pipeline, along with 4,900 kilometers (3,000) miles) from the Keystone Pipeline system. 

Key Highlights:

• Increase in revenue: For Q1FY22, the company reported an increase in revenue to CAD 3,500 million as compared to CAD 3,381 million in Q1FY21. The US Natural gas pipeline segment (contributing 41.4% to the total revenue) saw an uptick in the sales to CAD 1,449 million in Q1FY22, against CAD 1,351 million in Q1FY21. The company’s liquid pipelines reported sales of CAD 668 million, which is higher than CAD 573 million in Q1FY21.

• Improved liquidity: During Q1FY22, the group reported an increase in the cash and cash equivalent to CAD 1,073 million as compared to the cash and cash equivalent balance of CAD 673 million in Q4 FY21. To add more, the group's cash flow from operation also increased to CAD 1,707 million during Q1FY22, as compared to CAD 1,666 million in Q1FY21. The increased liquidity is very important for the company to meet its operating expenses as well as to carry out the strategic growth objectives.

• Industry beating profitability margins: In Q1FY22, the company reported increased revenue along with a turnaround in its liquids pipelines segment, and curtailed the cost of production, leading to the industry-beating profitability margins, which are depicted below.

Source: Refinitiv, Analysis by Kalkine Group

• Outlook for FY22: For FY22, the company expects its comparable EBITDA to be modestly higher than the comparable EBITDA of FY21, and the comparable earnings to be in line with the FY21. The group estimated the capital expenditure for FY22 to be close to CAD 7 billion, primarily because of higher costs for the NGTL system, which is a reflection of the inflationary pressure of rising costs of labor and raw material, etc.

Risks associated with investment

The company is vulnerable to the slowing demand of energy consumption because of any substantial rise in prices along with the geopolitical tensions escalating further. With this, the other risk threatening the group's financials and operations are but are not limited to, weather change, foreign currency fluctuations, credit risks, changing ESG and regulatory compliances, etc.   

Financial overview of Q1FY22 (Expressed in millions of CAD)

Source: Company Filing

• During Q1FY22, the group reported an increase in revenue to CAD 3,500 million as compared to the revenue of CAD 3,381 million in Q1FY21.

• The operating and other expenses increased to CAD 2,538 million in Q1FY22 vs CAD 4,572 million in Q1FY21. On account of the decline in goodwill and asset impairment charges in Q1FY22 to CAD 571 million from CAD 2,845 million in pcp, the group witnessed overall reduced operating and other expenses.
• The group posted net income of CAD 400 million during Q1FY22 as compared to the net loss of CAD 950 million in Q1FY21.

Valuation Methodology (Illustrative): Price to Earnings based

Analysis by Kalkine Group

Stock Recommendation:

The group reported an increase in total revenue of CAD 3,500 million during Q1FY22 against CAD 3,381 million in Q1FY21, along with the net income of CAD 400 million in the similar reported period (Q1FY22) as compared to the net loss of CAD 950 million in Q1FY21. Further, the company witnessed a marginal increase in its total asset base by segment to CAD 105,182 million in Q1FY22 against CAD 104,218 million in FY21. Recently the company declared a quarterly dividend of CAD 0.90 per common share, payable on July 29, 2022.  On the valuation front, the stock is measured on the Price to Earnings based multiple and we have considered Enbridge Inc., Pembina Pipeline Corp, etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock of TRP at the last closing price of CAD 73.38 on May 18, 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 of May 18, 2022). Analysis by Kalkine Group

Note: The reference data has been partly sourced from REFINITV

Disclaimer

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