Kinder Morgan Canada Ltd. (TSX:KML) had its initial public offering (IPO) on May 30. Its parent company is Kinder Morgan Inc. (NYSE:KMI). The stock has risen 4.93% since the IPO amid volatility due to the ongoing political rift surrounding the construction of the Trans Mountain pipeline expansion. The project, worth $5.5 billion, was approved by the Federal Government in 2016. The British Columbia election in May led to the formation of a government led by the NDP and Greens, who had both been vocal about their skepticism with regards to expansion of the pipeline.
On August 10, the provincial government announced that Kinder Morgan could not begin work on the planned expansion until the company “meaningfully” consulted Aboriginal communities. The new environment minister in B.C. said that the September construction date set by Kinder Morgan Canada is unlikely to be met.
Kinder Morgan Canada stock fell 3.7% on the date of the minister’s comments. As of close on August 14, the stock price has fallen 7.14% in a week. This was after the share price had reached an all-time high of $18.60 in early August on the back of the oil rally.
On July 19, Kinder Morgan Canada released its second-quarter results. It posted net income of $25.1 million — $0.11 per share — missing analyst expectations. The company also reported revenues of $168.7 million — up from the $165.8 million in Q2 2016. The board of directors declared a prorated dividend in Q2 of $0.06 per share, representing a 3.81% dividend yield.
Kinder Morgan Canada responded to the comments from the environment minister by reiterating its commitment to beginning construction in September. The company also issued a statement saying that it had undertaken extensive consultations with the Aboriginal community.
The dispute has sparked interprovincial tensions with prominent Conservative Jason Kenney, who is running to helm the Official Opposition in Alberta, threatening repercussions if the NDP government moves to “undermine the rule of law” and block or delay the pipeline. The reigning Alberta premier Rachel Notley, who is also an NDP party member, believes that the pipeline dispute will be resolved and all parties will be satisfied. The Notley government came to power under similar pressures to roll back pipeline projects, but it eventually ceded to federal and economic pressure.
Pipeline projects across North America have been mired by false starts and controversies. The Trudeau government came to power with an enthusiastic green-energy policy, as did the Notley NDP government in Alberta. Both parties were willing to set aside ideology in the interest of Canadian economic growth.
In this instance, I see Kinder Morgan Canada being more than willing to work with indigenous communities in the framework that the NDP government has laid out. I also expect the company to be aggressive in its push to meet the September construction deadline.
Investors may want to jump on the bad news to accumulate shares at a reduced price. Oil has also retreated but is expected to remain in the $45-55 range for the remainder of the year. If Kinder Morgan Canada meets its construction target, the potential for growth combined with its decent dividend more than justifies a buy.
