Strong results to close out the year; maintaining BUY rating and C$32.00 target
Investment recommendation Pembina Pipeline reported fourth quarter cash flow per share of $0.59, ahead of our $0.54 estimate, as well as the $0.49 consensus estimate. The strong results were driven by volume growth on all of its operating segments driven by increased producer activity and new facilities brought online, as well as the incremental contribution from the Provident NGL assets acquired in April 2012. Pembina has amassed a robust portfolio of opportunities with $2.4 billion of organic growth projects secured and expected to be in service between 2013 and 2015. The company has also identified a further $1.6 billion of potential opportunities for a total of $4 billion of unrisked growth opportunities. We expect the company's strong growth profile to drive higher per share earnings and cash flow. It is worthwhile to note that all of the announced growth projects are backed by long term fee for service contracts which provide increased stability to future cash flows and reduces the proportion of assets exposed to commodity price exposure. We are maintaining our BUY rating and C$32.00 target price on the shares. Valuation Our 12-month C$32.00 target price is derived through a discounted cash flow approach that reflects the net asset value of Pembina's existing operations and from projects announced and currently being developed. Due to the uncertainty of timing, amounts and associated returns, our target price does not reflect any value for uncommitted growth projects.