Pembina Earnings: Marketing Again Boosts 2023 Guidance; Trans Mountain Bid Possible in Late 2024

Pembina’s PPL third-quarter results were a bit better than expected, primarily due to stronger marketing contributions. Pembina’s 2023 EBITDA guidance is now a midpoint of CAD 3.8 billion, compared with prior guidance of CAD 3.65 billion. We had expected some marketing upside, as our forecast was CAD 3.7 billion, but we’ve increased our near-term forecast again. Third-quarter marketing EBITDA still fell about 12% from last year’s levels, but results are not as bad as originally feared, due to higher margins on natural gas liquids sales. After updating our model, our CAD 41 per share fair value estimate is unchanged, while our U.S. fair value estimate falls $1 per share to $29 due to updated exchange rates. Our no-moat rating remains unchanged.

Cedar LNG remains Pembina’s best near-term bright spot. A final investment decision for the 3 million ton per year facility is still targeted by the end of 2023. However, the complexity of securing tolling agreements with LNG Canada and Coastal GasLink could push it to early 2024.

We are substantially more uncomfortable with Pembina’s still-under-consideration bid for the Trans Mountain pipeline. The Trans Mountain expansion is expected to come online in early 2024. We think there is a high likelihood of shareholder valuation destruction. Pembina is part of a partnership with the Indigenous communities alongside the pipeline’s route. The Canadian government has started the first phase of the divestment process for the pipeline, with a planned sale of a stake to Indigenous communities. Pembina’s partnership is not eligible to participate. A second phase of the divestment is set to occur by the end of 2024 when Pembina is eligible to participate. Currently, Pembina is waiting to see how the numerous outstanding issues play out to fully assess any potential bid. We’d flag the tolling issues as particularly concerning, given shipper pushback on the very high proposed tariffs.