Pembina Pipelines: Should It Be In Your Portfolio For 2014?

Nov.18.13 | About: Pembina Pipeline (PBA)

I last wrote about Pembina Pipelines (PBA) in August of this year. You can read that article here.

I think it would be good to revisit the company and new developments that have taken place since I wrote that article. If you are unfamiliar with the company, you can find a thorough overview of it in my previous article. I would suggest you read that first so you'll have a clear idea of what the company does.

Latest Developments

1) September 4, 2013, the company announced that the current CEO, Bob Michaleski, plans to retire at the end of this year. His successor will be Mick Dilger, the current COO of Pembina. Mr. Dilger will take over this role as of January 1, 2014, and at that time will be appointed to the Board of Directors. Bob Michaleski will continue serving on Pembina's Board of Directors.

According to Lorne Gordon, Pembina's Chairman of the Board, Mr. Dilger was "identified early on in his career...as a potential candidate for the role of CEO due to his strong operational focus, business development acumen, and leadership abilities."

2) September 9, 2013, the company declared a cash dividend of $0.14 (approx. $US 0.135) per share, which was paid on October 15, 2013.

3) September 16, 2013, the company announced plans to proceed with a $115 million expansion of its Peace Pipeline System between Simonette and Fox Creek, Alberta. The company expects to begin construction on the pipeline project this winter, with an estimated service date in third quarter 2014. See press release here.

4) October 2, 2013, the company announced it closed a public offering of 6,000,000 cumulative redeemable rate reset class A preferred shares, series 3, for aggregate gross proceeds of $150 million. Proceeds will be used to partially fund capital projects, reduce short-term indebtedness and for other general corporate purposes.

5) October 9, 2013, the company declared a dividend of $0.3726 per share for the period commencing July 26, 2013, to November 30, 2013, on the companies cumulative redeemable rate reset class A preferred shares, series 1 and a dividend of $0.1932 per share for the period commencing October 2, 2013, to November 30, 2013, on the companies redeemable rate reset class A preferred shares, series 3.

The company also declared a common share cash dividend for October, 2013, of $0.14 per share to be paid on November 15, 2013.

6) November 1, 2013, the company released its financial results for third quarter 2013, which included the following highlights:

  • Q3 2013 consolidated operating margin increased 27 percent over Q3 2012 to $225.8 million.
  • YTD operating margin totaled $673.4 million, an increase of approximately 48% over first nine months of 2012.
  • Q3 2013 earnings were $71.8 million ($0.22/share) compared to Q3 2012 earnings of $30.7 million ($0.11/share). For the first nine months of 2013 earnings totaled $256.1 million ($0.83/share) compared to $143.7 million ($0.58/share) for the first nine months of 2012.
  • Q3 2013 adjusted EBITDA was $200.8 million compared to $153.8 million for Q3 2012. Adjusted EBITDA for the first nine months of 2013 was $596.1 million compared to $391.1 million in first nine months of 2012.
  • Q3 2013 cash flow from operating activities was $87.3 million ($0.28/share) compared to $130.9 million ($0.45/share) in Q3 2012. The decrease in cash flow was primarily due to increased operating working capital. For the first nine months of 2013 cash flow from operating activities was $456.5 million ($1.50/share) compared to $220.3 million ($0.89/share) for the first nine months of 2012. The YTD increase was primarily due to improved results from operating activities as well as the acquisition of Provident Energy Ltd., which was completed on April 2, 2012.
  • Q3 2013 adjusted cash flow from operating activities was $188.7 million ($0.61/share) compared to $133.2 million ($0.46/share) for Q3 2012. The increase was due to increased EBITDA and lower net interest paid. For the first nine months of 2013 adjusted cash flow from operating activities was $540.1 million ($1.77/share) compared to $321.5 million ($1.30/share) for the same period in 2012. This was primarily due to stronger operating results, returns on new investments and the impact of the acquisition of Provident Energy Ltd.

Mick Dilger said: "Pembina currently has the largest suite of commercially secured and unrisked growth projects on its horizon than at any time in its history. I know we have the right team in place to continue driving long-term and sustainable shareholder value going forward. Both our leadership team and our employees are ready to execute on the numerous growth opportunities in front of us with an unwavering commitment to delivering safe, responsible and reliable services from our existing businesses."

7) November 6, 2013, the company declared a common share cash dividend for November, 2013, of $0.14/share to be paid on December 15, 2013.

Conclusion

I believe that Pembina Pipelines offers an extremely good investment opportunity right now. It's an extremely well run organization and I believe that combined with its regular dividend it offers both attractive income and an opportunity for capital appreciation. I am long on the company's shares and am adding to my position on a monthly basis.

Disclosure: I am long PBA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.