veresen stock pitch
DESCRIPTION
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BUSINESS OVERVIEW
Veresen Inc. 1-Year Price/Volume
Veresen’s Business Model
Ticker TSE: VSN
Market Cap. ($) 2.88B
Enterprise Value ($) 3.48B
Stock Price ($) 9.98
52-Week Range ($) 9.80 – 19.40
P/E 27.4x
EV/EBITDA 54.08x
Veresen Inc. Owns and operates energy infrastructure assets across North America. The company’s principal business segments are pipeline transportation, natural gas liquids, and power generation.
Growth by acquisition – 14 major deals between 2009 – 2015.
Diversifying portfolio with recent entry into LNG processing and future global expansion.
Focus on infrastructure and avoidance of exploration risk. Tariffs are the main source of revenue.
Retaining investors by offering high dividend yield along with a dividend reinvestment plan
(DRIP).
SUMMARY OF OPERATIONS
All current operations in North America. Seeking global opportunity in LNG—Jordan Cove and Pacific Connector. Significant focus on green energy.
BUSINESS MODEL
Taking advantage of low interest rates to grow the business.
Acquisitions by cash offering.
• Majority of small acquisitions.• Cash from operations and debt financing.
Acquisitions by combination of equity and debt offering.
• Major expansion projects.• Issue of bonds and shares; high dividend yields to retain and attract investors—DRIP.
Issuing bonds at low interest rates to retire debt with high interest rates.
• Early redemption of high interest debt.• Buyback of shares.
Acquire Integrate Operate
Acquire related infrastructure.
Integration of assets.
Operations focus on lean management.
INTERNAL ANALYSIS
Strong Senior Management
History of Successful Acquisitions
Veresen Inc. has a management team with considerable amount of experience in the energy industry, as well as a proven track record of success with acquisitions.
President, CEO, and Board MemberDon Althoff has over 30 years of experienceIn leadership roles in the energy sector. All other executive/ board members comefrom diverse background including energy,financial institutions, and construction. Combinedexperience over 100 years.
Notable Senior Executives.
Donald L Althoff President/CEOElizabeth G Spomer Exec Vice PresidentKevan S King VP/Secy/Gen Counsel Theresa Jang VP:Finance/CFOThomas Day VP:OperationsDorreen Miller Director:Investor Relations
2015 Dawson area gas storage and compression assets
2014 Ruby Pipeline
2012 York Energy Centre – Wind Energy
2011 Hydroelectric projects - BC
2010 Acquired Pristine Power
2008 London Cogeneration facility
EXTERNAL ANALYSIS
Growth in LNG Exports & Future of LNG
Veresen Inc. has a management team with considerable amount of experience in the energy industry, as well as a proven track record of success with acquisitions.
Environmental resistance for new pipelines. Existing pipeline companies expected to remain over the next decade. Asia gas demand rapidly increasing—positive outlook for Jordan Cove.
INVESTMENT THESIS
High dividend with possibility of capital gain.
50% ownership of Ruby pipeline in 2014.• Strategic fit with upcoming Jordan Cove LNG Terminal.
Jordan Cove & Pacific Connector Pipeline• Access to other geographical markets.• Diversification of portfolio. Transition from inorganic growth.• FERC environmental impact statement released on September 30th, 2015 – Positive
Outlook.
Existing Assets• Attractive midstream assets with long-term contracts.• Power generation.• Stable cash flow.• Focus on infrastructure to avoid volatility.
VALUATION
Discounted Cash Flow Analysis
$ CAD MM 2015E 2016E 2017E 2018E 2019E EBIAT $49.0 $49.7 $50.2 $50.7 $51.2
Depreciation 48.8 49.6 50.0 50.5 51.1
Capex (Maintenance) (15.3) (15.5) (15.6) (15.8) (16.0)
Unlevered FCF $82.6 $83.8 $84.6 $85.5 $86.3
Discount Factor 0.96 0.88 0.81 0.75 0.69
Discounted FCF $79.2 $73.9 $68.7 $63.8 $59.3
WACC 8.7%
2019E EBITDA $121.3
Exit Multiple 16.0x
Terminal Value $1,940.0
PV Terminal Value $1,278.4
Total Equity Value $3,444.0
Fair Value per Share 14.03
Current Share Price 9.98
Implied Upside 41%
An exit multiple of 16.0x was assumed; this is in line with analyst predictionsfor Veresen.
RISKS & CATALYSTS
RISKS CATALYSTS
Lack of experience in organic
growth.
Learning curve may be longer than
expected.
Geopolitical risk.
Govt. pressure on stringent pipeline
regulations
Demand for clean energy.
Jordan Cove LNG has a lot of
upside potential.
Absence of subsurface risk.
Less immune to greenhouse gas
effect.
Existing infrastructure with secured
contracted; provide stability in
short-medium term
Small leadership team, but very
experienced.
Primary focus on infrastructure.