Credit Suisse has a Neutral rating and $42 target price on
TransCanada Corp. (TRP.TO).
Double dropdown: "TransCanada Corporation announced the sale of
a 25% interest in two pipeline assets to TC Pipelines LP (TCPLP).
Specifically, TRP will sell a 25% interest in two pipeline assets,
Gas Transmission Northwest LLC (
) and Bison Pipeline LLC (Bison), to TCPLP for roughly US$605m
which includes roughly US$81m of proportionate GTN debt. The
transaction is expected to close in May 2011. Notably, the LP
expects the deal to be "immediately accretive to Partnership cash
flows and earnings." We believe this transaction illustrates TRP's
seldom appreciated financial flexibility and the potential movement
to becoming increasingly capital efficient. TRP's US asset base
could translate into further asset dropdowns to TCPLP resulting in
greater capital efficiency and more growth for the MLP."
Funding the future: "In our view, this transaction should
greatly reduce any market concerns about TransCanada tapping the
equity markets in the near-term. We believe this announcement may
mark the beginning of a new pace of growth for TC Pipelines, LP in
which TRP is the general partner and holds a 38.2% interest. Over
time, that growth should enhance returns and provide greater
flexibility for TRP."
Investment themes: "We believe the company's asset base is
favourably positioned for a number of investment themes, including:
increasing future volumes from Alberta's oil sands; Northern
natural gas; and, low cost generation exposure in a number of
structurally tight power markets."
Valuation: "Our Neutral rating and target price of C$42.00 is
obtained from multiple approaches, including: a variety of
multiples such as an implied 16.5x P/E multiple and an 11.1x
EV/EBITDA multiple; a dividend yield of 4.0%; and, a DCF. We
reiterate our Neutral rating."
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