Following what was a challenging 2018, shares in AltaGas (TSX: ALA) have been painting a different picture to start 2019, posting gains already of more than 40%.
Let’s recap some of the key highlights from the past 12 months that have helped reverse the fortunes of this leading midstream and utilities company.
The biggest development over the past 12 months was unquestionably the company’s acquisition of WGL Holdings last year for approximately $9 billion.
But while management so far is really pleased with how that deal has been panning out (more on that below), the cost of the M&A transaction was by no means cheap.
As a result, the Calgary-based energy infrastructure company has had to make some difficult choices when it comes to re-balancing not only its balance sheet but its business moving forward.
Part of those decisions have included the sale of its 55% interest in Northwest Hydro as well as the initial public offering of AltaGas Canada, of which it still holds a 37% stake in.
Collectively, those divestitures and others have been successful in generating proceeds of $3.8 since mid-2018 with plans for an additional $1.5-2 billion in non-core asset sales this year.
Funds that the company has, and plans, to receive from those divestitures have been used in part to pay down some of the debt associated with the WGL acquisition as well as refocus the company’s asset base on where it feels the opportunities are the greatest – namely, its midstream and utilities businesses.
Within its midstream segment, the company sees opportunity to grow its footprint and enhance its service offering by connecting producers with new markets, including those located within the Asian region.
Meanwhile, it’s also holding high hopes for its utilities segment, where it sees significant growth opportunities that can be tapped into through investments targeted towards customer acquisition, systems improvements, and accelerated replacement programs.
In the short term, AltaGas expects to have close to $1 billion in brand new capital growth projects coming online in 2019, including the Ridley Island Propane Export Terminal (RIPET), Townsend 2B Facility, Nig Creek Gas Plant, Mountain Valley Pipeline, and the Marquette Connector Pipeline.
The RIPET project — one of the company’s most significant — celebrated its grand opening last week, and marks the first marine export facility for propane in anywhere in Canada.
Foolish bottom line
Plans are for another $1.3 billion of capital investments this year, primarily focused within midstream and utilities projects, and earnings before interest, taxes, depreciation, and amortization of somewhere in the range of $1.2-1.3 billion.
The company previously cut its monthly dividend to $0.08 per share from its previous $0.1825 per share back in December, but the market has done nothing but rally on the stock since then, sending the ALA shares skyrocketing more than 65% from their late-December lows.
This is a company that’s doing the right thing, restoring balance sheet flexibility as it continues to invest in profitable growth projects that will help lead it into the next decade.
Investors ought to give AltaGas and its current 4.40% dividend yield a chance.
It may just be an operation with an extremely bright future ahead of it.
