Pacific Northern Gas down 1%, Moves Away from Near Yr Highs as Credit Suisse keeps Neutral, raises TP

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Credit Suisse has kept an Neutral rating on Pacific Northern Gas Ltd. (PNG.TO) but raised its Target Price to $30 from $28. PNG is now down more than 1% at around $31, having opened at $31.72, which was shy of a year high $31.99.

Profitable pipe: "Surprisingly, Pacific Northern Gas Ltd. announced the sale of its 50% interest in Pacific Trail Pipelines Limited Partnership ( PTP ) for C$50m to partners Apache Canada Ltd. and EOG Resources Canada Inc. Under the agreement, PNG will operate the KSL Pipeline for at least the first seven years following the project's expected 2015 completion. Clearly, we appreciate the challenges facing a small cap company attempting to build a large project. Therefore, this transaction may be viewed positively in terms of overall risk management, for PNG's utility rate payers and near-term value creation. Yet, disposing of a unique project generates questions about PNG's capital market positioning and uses of the excess capital."

Cash consideration: "Upon transaction close at the end of February, PNG will receive C$30m with another C$20m contingent upon APA and EOG's proceeding with the Kitimat LNG project. PNG stated cash proceeds will be roughly C$9-C$10/sh after taxes and related expenses. We believe capital redeployment and strategic positioning are critical topics. In our view, the cash position may be applied to growing the hydro-electric business, but a special dividend is also possible. Currently, PNG is involved in a strategic review that should provide the Street greater direction in the near future."

Investment thesis: "We believe Pacific Northern Gas provides low-growth infrastructure exposure with some growth potential given the sale of its interest in PTP."

Valuation: "Given PTP's monetization and the capital redeployment potential, we increased our target price to C$30 from C$28. The target is obtained from multiple valuation methods, including: a P/B multiple of 1.1x; a 14.5x P/E multiple; a 7.6x EV/EBITDA multiple on 2012 estimates; and, a DCF. We reiterate our Neutral rating."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Commodities

Referenced Stocks: PTP

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