AltaGas is a North American diversified energy infrastructure company. It engages in delivering affordable natural gas through regulated distribution utilities and transacts more than 1.5 Bcf/d of natural gas. In addition, AltaGas provides storage facilities, interstate natural gas transportation, energy efficiency contracting and retail power marketing services.
The company operates through utilities (42% of EBITDA), midstream (27%) and power (31%) segments. It serves 1.6 million customers in the utilities and owns infrastructure assets worth more than $21 billion in some of the fastest growing energy markets in North America. AltaGas’ assets include a good mix of gas, power, and utility assets. Its midstream business serves customers primarily in the Western Canada Sedimentary Basin. AltaGas is known for its premier energy solutions, the strength of its assets and expertise along the energy value chain. The company benefits from the ownership of steady utility business and high growth midstream assets.Investment Data
- Opportunity Score: 63
- Ticker: TSE:ALA
- Sector: Utilities
- Industry: Utilities - Regulated Gas
- Market Cap: 4.69B
- P/E: 11.60
- Dividend Yield: 5.72%
- Dividend Payout Ratio: 66.21%
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
Revenue Growth & Market Exposure
AltaGas’ Midstream segment serves customers in the Western Canada Sedimentary Basin and transacts more than 1.5 Bcf/d of natural gas. Its Utilities business serves nearly 1.6 million customers and owns regulated natural gas distribution utilities in the District of Columbia, Virginia, Maryland, Michigan, and Alaska. Its Power segment includes 695 MW of operational gross power generation capacity from gas-fired, solar, biomass, and energy storage. Given its clean energy expertise, the company continues to deliver innovative solutions with light capital investment.
AltaGas has infrastructure assets in some of the fastest growing energy markets in North America, including significant positions in the Montney basin and utilities operations in five states. It has a solid presence along the entire energy value chain connecting customers with premier energy solutions in new markets around the world.
AltaGas started as a pure midstream player back in 1994 and has today become a diversified energy infrastructure company. The company slowly expanded into power and utilities business and has surpassed an energy asset portfolio worth $20 billion in value spanning across North America. AltaGas’ portfolio is characterized by highly contracted assets in strong market fundamentals providing long-term stable cash flow.
AltaGas continues to invest in U.S. utilities located in strong growth markets with the potential for a growing customer base and system improvement. The company has successfully repositioned itself as a low-risk, high-growth utility and midstream company through the WGL acquisition in the last year. AltaGas is looking at gaining from its recently started RIPET project. Its planned asset sales are expected to further de-lever the corporation, fund future growth, and focus on core areas.
AltaGas pays monthly dividends which have reduced recently as a result of the company’s focus on paying down its debt through asset sales. Even though the dividend payout has been cut to $0.96 from $2.19, the company sports a low payout ratio of 25% and an annual average dividend yield of 4.8%, which is pretty attractive for a utilities company. The company’s five-year dividend growth rate is 6.9% CAGR.
AltaGas’ high-growth assets in the midstream segment, combined with predictable and regulated returns in utilities segment, provides a resilient and diversified platform for growth. The company is well positioned to help meet the growing global demand for clean energy. It has significant growth opportunities, particularly within its utilities and midstream segments. Nearly 75% of AltaGas’ normalized EBITDA is backed by medium to long-term contracts. RIPET has already contributed $37 million in EBITDA to AltaGas’ business in the third quarter alone.
AltaGas has sought a prudent investment plan for 2019 which comprises capital allocation of $1.3 billion to projects with strong risk-adjusted returns, and contributions to normalized FFO and earnings per share. The company is eyeing a combination of asset sales, a reset of the dividend payout, and a focused approach to strategic capital allocation to further strengthen its financial position.
AltaGas continues to focus on its midstream and U.S. utilities segments as near-term priorities to drive performance and organic growth. It is expecting the renewal and extension of its distribution pipelines in the utilities business to drive higher returns by focusing on operational efficiencies, superior customer service, and accelerated rate recovery mechanisms. The company expects normalized EBITDA in the range of $1.2 – $1.3 billion and normalized FFO of $850 – $950 million for FY 2019.
AltaGas competes with leading energy infrastructure companies in North America like TransCanada, Pembina Pipelines, Inter Pipeline, Secure Energy, Gibson Energy, etc. TransCanada moves more than 25% of natural gas consumed daily across North America, while Pembina has a large presence in crude oil, natural gas and NGL industries across multiple basins and markets throughout Canada and the U.S. Inter Pipeline engages in petroleum transportation, storage, and NGL processing, while Gibson Energy is a leading oil-focused infrastructure company in Canada. AltaGas’ stable utility business and high growth integrated midstream assets act as strong growth enablers and should continue to deliver attractive risk-adjusted returns in the future.
The company’s integrated footprint along the entire energy value chain is capable of delivering sustained value to both shareholders and customers. AltaGas’ improving financial strength and capital flexibility should position it to execute on the significant attractive growth opportunities in its midstream and utilities segments in the near term. The company is expecting future growth to come from rate base and customer growth at utilities, RIPET project, additional fractionation and gas processing volumes, and Marquette Connector pipeline.
While AltaGas has had various ups and downs resulting in a lacklustre performance, even for patient investors, the company appears to have a plan for 2020. While the last months of 2019 appears to show a bounce, I would wait longer to see what 2020 really has in store.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.