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AltaGas: Strong Finish To 2020

Mar. 08, 2021 1:03 PM ETAltaGas Ltd. (ATGFF), ALA:CA13 Comments


  • AltaGas has had a troubled past but recent quarters are hitting all the right notes.
  • We examine the Q4-2020 results and the 2021 guidance.
  • We tell you why we still like this one but are now slightly less bullish.
  • I do much more than just articles at Conservative Income Portfolio: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Note: All amounts referenced are in Canadian Dollars.

When we last covered AltaGas (OTCPK:ATGFF) we gave it another "buy" rating. Specifically we said,

But that is all behind it and the self-funded model looks appealing, even to skeptical investors. We are reiterating a "buy" here with a price target of $21 in 12 months. This makes for a solid all-round return prospect with a nice monthly dividend stream. Cautious investors can also consider AltaGas Preferred Shares for an income play.

Source: Reiterating Buy On Self-Funded Plan

The stock has done well since then and outperformed the broader indices. But the real divergence has come in its performance vs the TSX Utilities Index (TSX: XIU), where AltaGas has really delivered.

With this performance in place and the Q4-2020 results being out, we decided to see if we needed to tweak our thesis.


AltaGas capped a good year with a strong fourth quarter. Normalized EBITDA approached almost $400 million in Q4 and the whole year delivered adjusted earnings of a $1.42.

Source: Q4-2020 Presentation

While those numbers were good, investors should remember that AltaGas business has a bit of cyclicality and the fourth quarter is supposed to be exceptionally strong. In this light, the numbers were about average. We can see this better when we do a walkthrough the delta from Q4-2019.

Source: Q4-2020 Presentation

Year over year, normalized EBITDA grew less than 1% but that was still higher than our expectations.

Source: Q4-2020 Presentation

Earlier in 2020, we thought that the headwinds of asset sales might be tough to overcome but AltaGas did manage do it.

2021 Guidance

AltaGas surprised the bears again with a very big jump in adjusted EBITDA forecast.

Source: Q4-2020 Presentation

The midpoint of that shows a more than 10% increase over 2020 numbers. Normalized

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Comments (13)

10 Mar. 2021
Nice review of AltaGas. I love their Canadian assets but hate the US business. The US area they serve is controlled by progressive politicians and I don't trust the regulators there, the anti-fossil fuel sentiment of those in control, and the required spend to maintain old pipes. After reading this piece and the comments I decided to take some decent profits on this position and move on. IMO there are better places to invest.
Trapping Value profile picture
@nesd Thanks for reading and commenting. Unfortunately the Canadian side is becoming a footnote vs the US side thanks to all the asset sales.
Pikaia profile picture
@Trapping Value Interesting note from the Globe & Mail's Scott Barlow that Credit Suisse has put AltaGas on a list of "top picks in global infrastructure". Could be related to debt resolution enabled by the asset sales reported today on SA by Carl Surran:
AltaGas (OTCPK:ATGFF) says it has sold its U.S. Transportation and Storage business to an entity owned by Six One Commodities and Vega Energy Partners for C$344M (US$275M).
waterlogger profile picture
It would be nice to know how many miles of nat gas pipe were replaced in each jurisdiction, how many miles per year were agreed on, and how many miles to go to completion.
If they are bleeding CAPEX at a slow but terminal rate, why try? You can only tap ratepayors for so much.
Long term destruction may not be over yet.
Buffett loves horror stories at fire sale prices.
Trapping Value profile picture
@waterlogger I think the risk is that they won't get anywhere close to the desired ROEs that they want. Their pipe replacements are a 24 year exercise. It is a very capex intense exercise. They are going to be going out asking for rate hikes every couple of years in at least 1 major jurisdiction. Won't be an issue for now.
waterlogger profile picture
@Trapping Value

I'm a retired utility thug.
More rate hikes every couple of years until the politicians find more votes telling the UTE no more rate hikes for pipes.
Local citizens utility boards have legions of activist lawyers to bring lawsuits to insure this stays in never never land.

The ongoing gnawing expense will continue to drag them ever closer to the abyss of fiscal demise. A bad year like Covid non allowance of shut offs for nonpayment, a bad pipeline ruling and... Oh! Look that's exactly the kind of calamity that's happening now!

What else do you need?
An alien landing in Washington D.C.?

Regulatory mandated renewable additions?
No strain on Capex being green right?

Everyone has pipe replacement projects ongoing in the upper midwest, east and southeast USA. If your utility is close to a hundred years old the pipes are too. Some UTEs replaced pipes as they grew, some delayed the toll until things broke.
The west and southwest weren't settled until many years later, those pipes are not the same.
It's whether you planned for them or inherited the mess that make them scalable to complete.
Most UTEs will give a tally of where they stand.

Imagine replacing a mile of nat gas line on Pennsylvania AVE in D.C.
You don't have the security clearance to read the scope of the project.
Find labor that are clearance qualified to be there, or added cost for 17 FED agencies to stop by and shut down your work every 20 feet or so just to double check some piss ants calculation to something else you don't know about buried nearby.
Daily briefings, onsite surveillance, Christ what all else they can do to slow you down.

This is a permenant impairment that's not improving any time soon.
Are they exceeding 4% completion per year?
It will never be complete.

If it is getting done in one state but not the others it won't take long for regulatory remediation on a mandatory scale.

Hope they don't vote for statehood in D.C.
If they become a state we all will pay for this entrenchment. Whether you invest or not.
I agree with the conclusion. There are better values in Canada. And since I hate it when commentators say 'there are better values' without listing any, I will say that ENB and Emera are better values IMO.

Altagas management made one huge, bad business decision (e.g., WGL) that was so bad that even I knew it was a mistake. Have they learned their lesson? I won't take that chance! Maybe they fired everyone involved; if so, it might not be un-investable, but as the author mentions, their assets aren't nearly as attractive as they used to be.
BeaBaggage profile picture
@Crimper TV has been writing extensively on CA values since 2017, check out his previous articles..they are all worth a look if you have time. B
Halfdayfree profile picture
Great update. Glad I scooped up some at your last article.
BeaBaggage profile picture
Guess I'll never get the WGL mess and will be interesting to see if it can break out at some point. Certainly agree there are other better opportunities out there.
Trapping Value profile picture
@BeaJawa It likely will never make up that lost ground. They had such huge free cash flow and if they just paid it all out or bought back shares, the stock would probably would have given 100% higher total returns. But they had to buy the most horrendous forced capex situation at 27X earnings. Flabbergasting lack of foresight by management.
@Trapping Value Totally agree. It is the only time in my entire life where management of a company I owned did something that completely confused and bewildered me. I sold half when the deal came out, then the other half once I was was sure of the craziness of the deal.
GKIC profile picture
08 Mar. 2021
Thanks, TV.
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