Keyera’s Q4 Looks Solid; KAPS Pipeline Is 99% Complete

Keyera’s KEYfourth-quarter results were a bit better than expected, as full-year EBITDA topped CAD 1 billion compared to our CAD 965 million forecast, mainly due to strong gathering and processing, and marketing results. Marketing, in particular, well outperformed a typical year of CAD 250 million-CAD 280 million in contributions with realized margins of CAD 397 million. At first glance, we will maintain our CAD 30 fair value and no-moat rating.

The startup of the CAD 1 billion KAPS pipeline in the second quarter of 2023 should serve as a new platform to build off for growth as it links Keyera assets through the system. It is also financially attractive with 75% of volumes under take-or-pay contracts. The project is a linchpin in securing Keyera’s expected 6%-7% annual EBITDA growth going forward by management, which we think looks a tad conservative.

We also tend to think the acquisition of a 21% stake in its Fort Saskatchewan facility—taking its full ownership to 98%—is a reasonable use of capital. The CAD 365 million deal is about 11 times 2023 operating margin and 9.5 times operating margin thereafter, which we consider to be fair. The deal adds incremental flexibility, particularly around storage, but also fractionation, de-ethanization, and pipelines. With the facility close to the center of Keyera’s asset portfolio from a geographic perspective, we think there’s ample opportunity to add incremental expansions over time, turning a fair deal into potentially a very good one.