TC Energy Corp

TC Energy Corp (TSX: TRP) is engaged in providing energy infrastructure which consists of pipeline and power generation assets in Canada, the United States, and Mexico.

Recently, the Company reported that it would provide a unique Green Jobs Training Program to help union members acquire the specific skills needed to work in the developing renewable energy sector. 

Q2FY20 Financial Highlights: TRP announced its quarterly results, wherein the Company posted revenue of CAD 3,089 million, declined from CAD 3,372 million in the previous corresponding period (pcp). The decline was primarily attributable to a drastic fall from its liquids pipeline and power and storage segments, while a slight increase from Canadian Natural gas pipeline supported the top-line. Comparable EBITDA stood lower at CAD 2,199 million, lower than CAD 2,324 million in pcp. Net Income stood at CAD 1,384 million, as compared to CAD 1,223 million in pcp, aided by lower interest expense, a higher interest income and others while higher depreciation & amortization coupled with a rise in plant operating costs remained a drag. Net cash provided by operations stood lower at CAD 1,613 million as compared to CAD 1,722 million in the previous corresponding quarter. During the quarter the Company made capital investments of CAD 2,150 million and used primarily for the expansion of the NGTL System and Columbia Gas projects, construction of the Coastal GasLink pipeline etc. The Company announced a quarterly dividend of CAD 0.81 per share, payable on October 30, 2020.

Q2FY20 Financial Snapshot (Source: Company Reports)

Key Risks: Due to the restrictions on account of global pandemic, the economic environment has remained highly volatile, resulting in softer market conditions. A second wave of the novel virus might hamper the demand, thereby reducing the volume.

Valuation (Illustrative): Price to Earnings Based Valuation

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of TRP gained ~13% in the last one month on the back of recovering crude oil demand. During the quarter, the company continued construction activities on the Coastal GasLink pipeline and sold a 65% stake in the project and reported a long-term project financing credit facilities to fund the majority of the construction costs resulting in combined net proceeds of CAD 2.1 billion. The Company has enhanced its liquidity through debt capital markets, arranging incremental committed credit facilities and completing sizable portfolio management transactions and confirmed ~CAD 11 billion of funds, which seems to be sufficient to navigate through the current challenging time. The stock carries a dividend yield of ~4.95%, which is lucrative considering the current interest rate environment. We have valued the stock using the Price to Earnings based relative valuation approach and arrived at a target price, which suggests a lower double-digit upside potential (in % terms). For the said purpose, we have considered peers like Enbridge Inc, Kinder Morgan Inc and Cheniere Energy Inc etc. Hence, considering the aforesaid facts, reopening of food services, current price movement, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 64.79 on August 13, 2020.

TRP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

ARC Resources Ltd.   

ARC Resources Ltd. (TSX: ARX) is a Canada based energy-producing company which is engaged in the acquisition, exploration, development, and production of conventional oil and natural gas.  The company produces light, medium, and heavy crude, condensate, NGLs, and natural gas.

The company paid a quarterly dividend of CAD 0.06 per share.

Q2FY20 Financial Highlights: ARC Resources announced its quarterly results, wherein revenue from commodity sales stood at CAD 215.1 million as compared to CAD 290.2 million in the previous corresponding period (pcp). The decline was primarily attributable to lower income from Crude oil and Condensate segment, partially offset by increased revenue from Natural gas segment. Average realized prices from crude oil stood at CAD 25.88/bbl as compared to CAD 70.26 /bbl in pcp. Average realization price of Condensate and Natural gas stood at CAD 31.54/bbl and CAD 1.92/Mcf, respectively as compared to CAD 71.38/bbl and CAD 1.74/Mc in the previous corresponding quarter. Total expenses stood lower at CAD 234.5 million as compared to CAD 272.6 million, a year ago, aided by significantly lower commodities purchased from third parties, higher gain from foreign exchange and a decline in operating cost, while the increase in the transportation costs remained a drag. Funds from operations stood at CAD 150.2 million, as compared to CAD 193.0 million in the previous corresponding quarter. Net loss before income taxes stood at CAD 88.9 million, as compared to a net income of CAD 30.5 million in pcp.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The income of the business is directly correlated to the crude oil and natural gas prices. Any volatility in oil and gas prices would impact the financial performance.

Valuation Methodology: P/CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of ARX soared ~37% and ~28% in the last one month and three months, respectively, due to a price recovery in the crude oil prices in the recent past. Amidst a tepid economic scenario, the company produced a higher Natural gas and NGLs, which is a key positive, and we expect a revival in the revenue through improved commodity prices in the coming days. We also expect the crude oil price to revive owing to the rise in demand, as the major economies are reopening and ensuring the recommencement of manufacturing and industrial activities. Further on a YTD basis, the company has produced a higher Crude oil and condensate of 28,243 bbl/day, as compared to 27,657 bbl/day in pcp. The company took prudent measures to ensure liquidity in the business by lowering FY20 capital investment program by CAD 500 million to CAD 300 million and reducing dividend from CAD 0.06 per share per quarter to CAD 0.05 per share. At the last traded price, the stock was trading above its 200-days SMA of CAD 5.92, indicating a bullish trend. We have valued the stock using the P/CF based relative valuation approach and arrived at a target price, which suggests a mid-single-digit upside potential (in % terms). For the said purpose, we have considered the industry mean (Oil & Gas) for the purpose. Hence, considering the aforesaid facts and current price movement and improved commodity prices, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 6.53 on August 13, 2020.

ARX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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