Keyera Earnings: Marketing and Liquids Outperformance Offsets Wildfire Impacts

Keyera’s KEY second-quarter earnings were solid, in our view. Its marketing performance was the biggest contributor, as full-year guidance is now expected to be a midpoint of CAD 395 million, up from CAD 350 million, thanks to strong year-to-date performance, hedges in place, and expected oil and gas prices in the second half of the year. The liquids business also did very well, with the initial KAPS pipeline system contributions flowing through earnings and boosting realized margins by over 20% from last year’s levels, as well as the benefit from the acquisition of a partial interest in the Keyera’s Fort Saskatchewan complex. The benefits from these improvements more than offset the negative CAD 13 million wildfires impact. The earnings growth has allowed Keyera to boost the quarterly distribution to CAD 0.50 per share (CAD 2.00 annually), up 4%, which is its first increase since 2020. After updating our model, we will maintain our CAD 30 fair value estimate and no-moat rating.

With KAPS now in service, Keyera now has an integrated model from wellhead to end market, or from its gathering and processing assets in the Montney and Duvernay to infrastructure in Edmonton and Fort Saskatchewan. This effort will enhance its ability to attract new volumes, and support ongoing EBITDA growth averaging 7% annually over the next five years, in our view. While capital spending is expected to decline, Keyera still has growth opportunities in terms of fractionation and KAPS expansions, as well as growth opportunities arising from serving the demand from LNG Canada and the Trans Mountain expansion projects.