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Energy Infrastructure Company Closes 'Transformational' Acquisition

Source: Streetwise Reports

 

July 11, 2018 (Investorideas.com Newswire) An iASecurities report discussed the benefits of the merger and next steps for the acquirer.


A July 9 iA Securities research note indicated that AltaGas Ltd. (ALA:TSX) closed its CA$9 billion deal with WGL Holdings and iASecurities raised its per share target price on Buy rated AltaGas to CA$30 from CA$29. The current share price is about CA$28.19. "This highly anticipated transaction is material as it essentially doubles the company's enterprise value and provides investors with additional exposure to power, utilities and midstream assets in the United States," wrote analyst Elias Foscolos.

Per the acquisition agreement, AltaGas issued CA$2.5 billion in equity, Foscolos explained. It did so through conversion of outstanding installment receipts into 80 million shares and through a bridge loan of CA$2.3 billion.

The company intends to reduce the bridge financing by issuing about CA$0.98 billion of hybrid/preferred securities and by divesting about CA$1.4 billion in assets. The sale of assets and the hybrid financing are the next catalysts for the company, the announcement of which "we believe equity investors will be eagerly anticipating," Foscolos commented.

With the closing of the WGL transaction, AltaGas "is a transformed company," Foscolos noted and explained why.

One, it becomes a more U.S.-focused, lower-risk company with an estimated 70%-plus of EBITDA to originate in the States. Only 10–15% of 2019 EBITDA will be exposed to short-term commodity prices. Medium- and long-term agreements will support about 80% of AltaGas' 2019 EBITDA.

Two, the merger provides the company with a large project pipeline. By incorporating WGL's midstream franchise in the Marcellus/Utica Basin, AltaGas will boost its CA$2 billion of internal growth capital projects to CA$5.8 billion.

Three, the transaction increases AltaGas' common equity valuation by roughly CA$2.2 billion, thereby increasing its market cap, too.

Also noteworthy, Foscolos said, is that adjusted funds from operations are expected to grow by about 10% through 2020, which could support a larger dividend. In fact, AltaGas is targeting an 8–10% dividend increase.

Moving forward, AltaGas "still needs to execute on a number of fronts," Foscolos indicated. It must integrate WGL into its company. It must divest of CA$1.4 billion of assets, which "could be more challenging." If it cannot do this, it plans to make up any difference by issuing debt. Lastly, the company must close the CA$0.98 billion hybrid financing.

Disclosure:

1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.

3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from iA Securities, AtlasGas Ltd., Research Update, July 9, 2018

Conflicts of Interest: The research analyst and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of iA Securities, which may include the profitability of investment banking and related services. In the normal course of its business, iA Securities may provide financial advisory services for the issuers mentioned in this report. iA Securities may buy from or sell to customers the securities of issuers mentioned in this report on a principal basis.

Analyst's Certification: Each iA Securities research analyst whose name appears on the front page of this research report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst's personal views about the issuer and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Analyst Trading: iA Securities permits analysts to own and trade in the securities and or the derivatives of the issuer under their research coverage, subject to the following restrictions. No trades can be executed in anticipation of coverage for a period of 30 days prior to the issuance of the report and 5 days after the dissemination of the report to our clients. For a change in recommendation, no trading is allowed for a period of 24 hours after the dissemination of such information to our clients. A transaction against an analyst's recommendation can only be executed for a reason unrelated to the outlook of the stock for the issuer and with the prior approval of the Director of Research and the Chief Compliance Officer.

The Industrial Alliance Securities Inc. research analyst(s), who cover the issuer discussed, members of the research analyst's household, research associate(s) or other individual(s) involved directly or indirectly in producing this report: a. have a long position in its common equity securites.

The analyst has visited the issuer's operations. No payment or reimbursement was received from the issuer for the associated travel costs.

In the past 12 months, neither iA Securities, its officers or directors, nor any analyst involved in the preparation of this report have provided services to the issuer for remuneration other than normal course investment advisory or trade execution services.


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