Keyera Corp. (TSX: KEY) is Canada-based midstream energy that operates majorly out of Alberta, Canada. The company is mainly into gathering and processing natural gas, liquids blending for NGLS and crude oil, and the marketing of NGLs, iso-octane, and crude oil. 

Key highlights

• Improved Production Throughput : For Q4FY21 the company reported an increase in its Gross processing throughput for Gathering and Processing segment to 1,517 MMcf/d as compared to 1,307 MMcf/d in pcp. Further, in Q4FY21, the Net processing throughput for the same divison rose to  1,281 MMcf/d  vs 1,106 MMcf/d   in pcp. For Liquids Infrastructure division, the Net processing throughput for Q4 FY21 rose to 81 Mbbl/d v/s 75 Mbbl/d in pcp.
  

• Improved Adjusted EBITDA in FY21: On February 16, 2022, the company announced its Q4FY21 and FY21 results, stating its Q4FY21 Adjusted EBITDA of CAD 294 million vs CAD 168 million in pcp. On an annual basis, its Adjusted EBITDA rose to 9.3% of CAD 956 million in FY21 as compared to CAD 874 million in FY20. The growth was supported by the improving demand in industrial activity and solid performance across all three business segments.   

• Business segment highlights: For FY21, the Gathering and Processing segment recorded a 24% increase in the realized margins to CAD 323 million in FY21 vs CAD 260 million in pcp. The major increase was from the Pipestone gas plant, which reported over 90% of its capacity utilization throughout H2FY21. Realized margins in the liquid Infrastructure segment witnessed a marginal increase of 2.5% to CAD 409 million in FY21 as compared to CAD 399 million in pcp. For the marketing division, the realized margins increased to 9.4% to CAD 323 million vs CAD 295 million in FY20.

Reported in Millions of CAD

Source: Company filings, Analysis by Kalkine Group

• Dividend for FY21:For FY21, the company declared a total dividend of CAD 1.92 per share, as 63% payout ratio, which improved slightly from 59% payout ratio in FY20, keeping the absolute numbers in line at CAD1.92 per share. On February 9, 2022, the company announced a cash dividend of CAD 0.16 per common share which will be payable on March 15, 2022, to the shareholder of record on February 23, 2022.
  

Risks associated with investment

The company is exposed to slow down in the industrial activity leading to lower revenues and declining profitability, production disruptions, and insufficient reserves to meet the demand. Rising prices, blasts, or faults in the pipelines, along with credit risk related to third-party transactions and commodity prices are key risks to be watched for. 

Financial overview of Q4FY 2021 (Expressed in thousands CAD)

Source: Company Filing 

• The company reported an increase in its total revenues for Q4FY21 at CAD 1.73 billion as compared to CAD 0.7 billion pcp. This rise was majorly contributed by the Marketing segment revenues of CAD 1.52 billion in Q4FY21 vs CAD 0.51 billion in pcp.

• The Operating margins for Q4FY21 were CAD 344.07 million vs CAD 165.51 million in pcp.  In Q4FY21 the Marketing segment reported its expenses at CAD 1.37 billion vs CAD 0.52 billion in pcp. This pushed the expenses towards CAD 1.39 billion in Q4FY21, impacting the operating margins negatively.

• For Q4FY21 the company recorded an increase in its finance cost to CAD 43.75 million vs CAD 37.91 million in pcp.

• Improved revenues and Operating margins helped the company to report Earning before Income tax of CAD 122.34 million in the reported period as compared to losses before income tax of CAD 101 million in pcp.

• The company reported a Net Income for Q4FY21 at CAD 90 million as compared to the loss of CAD 75 million in pcp.
  

Valuation Methodology (Illustrative): EV/ Sales multiples Based

Analysis by Kalkine Group 

Stock recommendation 

The company delivered a return of 8.82% in the past three months and 16.28% in the last one year. The company reported improving revenues and most importantly transitioning of quarterly losses in Q4FY20 to the positive bottom line in Q4FY21, which depicts the strong path company is moving along. The supportive macro environment and increase in demand of its products are keeping the group to maintain its pace of improving financials. To add more, a dividend yield of 6.35%, makes the company of high interest across the regular income-seeking investors. On the valuation front, the stock is measured on the Enterprise to Sales multiple base, which hints the stock is still undervalued as compared to its peers, leaving the scope for the stock to match the industry valuations. We have considered PHX Energy Services Corp, Gibson Energy Inc., Secure Energy Services Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing market price of CAD 30.20 on March 7, 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 7, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

Disclaimer

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