TC Energy Earnings: CAD 3 Billion in New Asset Sales Are on Deck, Plus Optimization Opportunities
Separately from its liquids spinoff announcement (please see our July 27 note for additional details), TC Energy TRP published solid second-quarter results. Overall EBITDA increased about 4% from last year’s results to CAD 2.5 billion, and management reaffirmed its 5%-7% EBITDA growth forecast for 2023 over 2022 levels, despite the pending equity interest sale of Columbia Gas and Columbia Gulf. As this guidance matches our CAD 10.6 billion EBITDA forecast for 2023, we expect to leave our CAD 63 and USD 48 fair value estimates and narrow moat rating unchanged. While TC Energy did not comment specifically on the Canadian wildfires, we note a sequential quarterly decline on NGTL volumes to 13.5 billion cubic feet per day (bcf/d) from 14.5 bcf/d—likely some of that impact is due to production losses by Canadian producers and lower system volumes. The Coastal GasLink project, a source of heartburn for TC Energy with its cost overruns, remains on budget and on track to be in mechanical service by the end of 2023 and is currently 91% complete.
TC Energy continues to work on its balance sheet. With one large asset sale already pending (our July 24 note covers the Columbia transaction), it plans to sell off another CAD 3 billion in smaller deals over the next 18 months to provide additional capital to reach its 4.75 times debt/EBITDA goal in 2024. The firm also has identified about CAD 1 billion in optimization opportunities across its network, with about CAD 150 million to be realized this year, and the rest planned by 2025. These are primarily capital reductions (about one third to half) but also some cost savings that will largely flow through to its customers via regulatory mechanisms. This type of savings will help offset the potential dis-synergies from the liquids spinoff but also will help improve its balance sheet.
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