AltaGas (ALA CN) Canada

Utilities

Veritas Investment Research

A troubled past and near-term risk are imposing a significant discount on ALA, offering equity investors an impressive FFO yield of ~17%. The firm’s recapitalisation efforts, including divestitures, now reveals a lower-risk business model with a stronger balance sheet. Its risk-reward proposition is fortified by regulated utility assets accounting for ~60% of EBITDA. ALA reaching its debt service targets in the near term will alter its allocation of capital, shifting away from debt repayments and focusing on shareholder distributions (sees potential for an industry-leading dividend growth rate of 5-7% p.a.) and reinvestment in midstream organic growth. TP $33 (40% upside).

- 23 June, 2023