Tag: Energy

Business Strategy and Outlook

Targa Resources is primarily a gatherer and processor of natural gas with an attractive position in the Permian Basin and other key U.S. shale plays. 

Targa’s longer-term growth picture over the next few years will be its Permian G&P position, liquefied petroleum gas exports, and the ramp-up of the Grand Prix natural gas liquids pipeline. There are few long-term concerns about the G&P business, because of the high level of competitive intensity within the Permian will keep returns extremely low. 

 The future of LPG exports and Grand Prix are quite attractive. LPG exports are largely contracted out to 2022 and sent mainly to Asian and Latin American markets. India remains a potentially attractive option under a government scheme designed to encourage LPG usage. Targa has wisely expanded its export capacity recently, and volumes are at record levels.

The Grand Prix NGL pipeline will be a highly attractive asset that takes advantage of Targa’s position in the Permian Basin to move over 350,000 barrels per day of NGLs by our estimates in 2021 (expandable to 550,000 b/d) to Mont Belvieu, and links Targa assets at both ends of the pipe, giving it more control over the molecule and ability to earn multiple fees. The Grand Prix pipeline will reduce Targa’s costs for NGLs, as it will no longer pay third-party tariffs to transport its NGLs to market.

Financial Strength 

In 2020, Targa’s financial health was weak but  has changed in a strong energy market in 2021 and Targa’s own efforts to fix its balance sheet. Targa has repaid $1 billion in debt in 2021, funded with strong earnings and lots of free cash by cutting the dividend and capital spending, and leverage is expected to reach 3.25 times by year-end, a commendable accomplishment for a firm that has historically run well over 4 times leverage. Still, Targa’s exposure to weaker customers is greater than peers’, as it disclosed that less than half of its revenue by our estimates is from investment-grade or letter of credit-backed customers. Peers tend to be around 75%-85% investment-grade or letter of credit-backed.Targa has boosted the dividend to $1.40 per share annually in November 2021, up from the $0.40 annually it paid out since March 2020. Previously, the payout was $3.64 annually. Share buybacks are now on the menu, as even after the expected Stonepeak repurchase in 2022 for $925 million, Targa will still have about $250 million-$300 million in excess free cash flow.

Bull Says

• Targa is leveraged to the high-growth Permian, and its Grand Prix pipeline is expected to increase volumes 25% in 2021. 
• Targa has reduced debt by $1 billion in 2021, which is a good accomplishment for what has historically been a highly leveraged firm. 
• Targa is a significant fractionation player at the attractive Mont Belvieu hub.

Company Profile

Targa Resources is a midstream firm that primarily operates gathering and processing assets with substantial positions in the Permian, Stack, Scoop, and Bakken plays. It has 813,000 barrels a day of gross fractionation capacity at Mont Belvieu and operates a liquefied petroleum gas export terminal. The Grand Prix natural gas liquids pipeline recently entered full service.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Business Strategy and Outlook

After NiSource’s separation from Columbia Pipeline Group in 2015, it now derives all of its operating revenue from its regulated electric and natural gas distribution utilities. About 60% of operating income comes from its six natural gas distribution utilities. The remaining 40% comes from its electric utility business in Indiana. NiSource to invest more than $10 billion over the next four years, including what could be nearly $3 billion of renewable energy projects in Indiana, where NiSource enjoys favorable regulation.

In October 2020, NiSource sold its Columbia Gas of Massachusetts utility and received $1.1 billion of proceeds that it used to strengthen the balance sheet and prepare for its planned infrastructure investments. The sale came nearly two years after a natural gas explosion on NiSource’s Massachusetts system killed one person north of Boston. Insurance covered roughly half of the almost $2 billion of claims, penalties, and other expenses, but the event was a public relations nightmare.

Financial Strength

NiSource has issued a substantial amount of equity in the past few years in part to fund its large infrastructure growth projects and in part to cover liabilities arising from the Massachusetts gas explosion. This dilution and the sale of Columbia Gas of Massachusetts has kept earnings mostly flat since 2018. NiSource’s debt/capital topped 67% at year-end 2017, but huge equity infusions have brought that down to more sustainable levels in the mid-50% range. NiSource issued over $1 billion of common stock and $880 million of preferred stock in 2018 and 2019. The Massachusetts utility sale in 2020 raised $1.1 billion, and NiSource issued $862.5 million of convertible preferred equity units in early 2021.

NiSource has grown its dividend nearly 40% since the 2015 Columbia Pipeline Group spin-off, but the growth has not been consistent. The company increased its dividend in mid-2016 by 6.5% and again by 6.1% in the first quarter of 2017, then by 11.4% in 2018. But the 2019 dividend increase was only 2.6% following the Boston gas explosion. It is Expected that dividend growth might pick up in 2024 once NiSource is past the peak of its five-year capital spending plan and its equity needs shrink.

Bulls Say’s

• Dividend is expected to grow near 5% annually during the next few years before accelerating to keep pace with earnings in 2024 and beyond.
• NiSource should benefit from Indiana policymakers’ desire to cut the state’s carbon emissions by replacing coal generation with renewable energy, energy storage, and possibly hydrogen.
• New legislation has improved the regulatory framework in Indiana for NiSource’s electric and natural gas distribution utilities.

Company Profile

NiSource is one of the nation’s largest natural gas distribution companies with approximately 3.5 million customers in Indiana, Kentucky, Maryland, Ohio, Pennsylvania, and Virginia. NiSource’s electric utility transmits and distributes electricity in northern Indiana to about 500,000 customers. The regulated electric utility also owns more than 3,000 megawatts of generation capacity, most of which is now coal-fired but is being replaced by natural gas and renewables.

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Production in the September 2021 quarter was higher than in June, with managed saleable coal production up 22%. Narrabri was the sole driver, adding more than one million tonnes more of saleable coal in September from the woeful June quarter’s 0.3 million tonnes.

Coal prices soared in the last quarter, fuelled by strong demand with coal being sought globally for industrial and energy use by governments in COVID-19 economic stimulus projects. On the supply side, production from Australia has yet to recover from the bout of low prices in 2020. According to the Australian Government’s Resources and Energy Quarterly, thermal coal exports from Australia in fiscal 2021 were down about 7% from fiscal 2019 levels and are not expected to fully recover until fiscal 2023.

Financial Strength:

Whitehaven remains substantially undervalued with the market likely underestimating the near-term cash flow generation from this business given the buoyant coal prices.

Whitehaven went into fiscal 2022 with more than AUD 800 million of debt. However, with the buoyant coal prices, about AUD 100 million of debt a month is being repaid, and the company is expected to have net cash in the third quarter. fiscal 2022. Whitehaven favourably received Federal approval for the Vickery Extension Project in September, with production expected from around 2025.

Company Profile:

Whitehaven Coal is a large Australian independent thermal and semisoft metallurgical coal miner with several mines in the Gunnedah Basin, New South Wales. It also owns the large undeveloped Vickery and Winchester South deposits in New South Wales and Queensland respectively. Coal is railed to the port of Newcastle for export to Asian customers. Equity salable coal production expanded from 10 million tonnes in fiscal 2014 to about 15 million tonnes in fiscal 2021, largely due to Maules Creek. The Maules Creek and Narrabri mines should be the key driver of an expansion in equity coal production to approach 19 million tonnes from fiscal 2023. Development of the Vickery deposit could see approximately 8 million tonnes of additional equity production from around 2025.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

NJR’s regulated utility business will continue to produce more than two thirds of earnings on a normalized basis for the foreseeable future as New Jersey’s need for infrastructure safety and decarbonization investments provide growth opportunities. NJR’s constructive regulation and customer growth has produced an impressive record of earnings and dividend growth.

NJR’s gas distribution business faces a potential long-term threat from carbon-reduction policies. To address that threat, NJR plans to invest $850 million in its solar business in 2021-24. These projects support aggressive renewable energy goals in New Jersey and other states. NJR also is well positioned to invest in hydrogen and biogas. NJR’s $367.5 million acquisition of the Leaf River (Mississippi) Energy Center in late 2019 paid off big in early 2021 when extreme cold weather allowed NJR to profit from its gas in storage.

Company’s Future Outlook

Our utility earnings growth estimate assumes 1% annual customer growth and $1 billion of capital investment in 2022-24, in line with management’s plan. NJR has maintained one of the most conservative balance sheets and highest credit ratings in the industry. We forecast an average debt/total capital ratio around 55% and EBITDA/interest coverage near 5 times on a normalized basis after a full year of earnings contributions from its midstream investments. NJR’s $260 million equity raise in fiscal-year 2020 will primarily go to fund the Leaf River acquisition and midstream investments. 

In mid-2019, it issued $200 million of 30- and 40-year first mortgage bonds at interest rates below 4%, among the lowest rates of any large U.S. investor-owned utility at the time. The success of the nonutility businesses and divesture of the wind investments also brought in cash to support its $2.5 billion of total investment in 2020-22. NJR will probably have to raise up to $700 million mostly through debt to help finance what we estimate will be $2 billion of capital investment in 2022-24.NJR’s board took a big step by raising the dividend 9% to $1.45 per share annualized in late 2021.

Bulls Say’s

• NJR’s customer base continues to grow faster than the national average and includes the wealthier regions of New Jersey.
• NJR raised its dividend 9% for 2022 to $1.45 per share, its 28th increase in the last 26 years.
• NJR’s distribution utility has received two constructive rate case outcomes and regulatory approval for nearly all of its investment plan since 2016.

Company Profile 

New Jersey Resources is an energy services holding company with regulated and non regulated operations. Its regulated utility, New Jersey Natural Gas, delivers natural gas to 560,000 customers in the state. NJR’s non regulated businesses include retail gas supply and solar investments primarily in New Jersey. NJR also is an equity investor and owner in several large midstream gas projects.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

CSR acknowledges and is responding to the structural change taking place in Australian residential construction. Cost of construction is increasing, while detached housing lot sizes decrease and a greater share of total dwellings are multifamily. Higher energy prices are making lightweight building alternatives such as fibre cement and AAC more attractive, while energy-intensive materials like brick are losing their appeal. To this end, CSR has acted to pivot toward lightweight building materials and executed a number of acquisitions to strengthen its positioning.These investments in lightweight building material businesses, including fibre cement and AAC, are part of CSR’s strategy to drive future growth as lightweight building materials, which reduce total building cost, gain greater favour.

Capacity reductions, industry consolidation, and buoyant construction markets have underpinned earnings growth, while high aluminium prices also have been a strong tailwind. This has enabled CSR to earn good but unsustainable returns on invested capital in recent years. Despite strong brands and scale, CSR exhibits sufficient pricing power or cost advantage to yield an economic moat. The balance sheet carries no debt, providing flexibility should acquisition opportunities arise.

Financial Strength 

CSR’s balance sheet remains in a position of undeniable strength, with net cash of AUD 251 million at fiscal 2021 year-end. With dividends reinstated, we forecast full-year ordinary dividends of AUD 0.24 per share in fiscal 2022-a 60% payout of forecast adjusted net profit.Substantial balance sheet flexibility remains in place for CSR. We continue to forecast ample liquidity to fund the businesses operations and with the capacity to fund the retirement of maturing debt facilities through to fiscal 2024. Absent capital management or M&A activity, we forecast a net cash position for CSR through the forecast period.

Bulls Say 

• Rationalisation of the brick operations has improved profitability in recent years. 
• Continued strong demand in China could see aluminium prices hold in at current levels. 
• The balance sheet is in excellent shape, providing flexibility for share buybacks or opportunistic acquisitions amid the COVID-19 downturn.

Company Profile

CSR is one of Australia’s leading building materials companies; it produces plasterboard, bricks, roof tiles, insulation, glass, fibre cement, and aerated autoclaved concrete. Founded as Colonial Sugar Refining Co. in 1855, CSR started producing building materials in 1942 and is behind recognised brands such as Gyprock plasterboard. CSR sold the last of its sugar assets in 2010 to focus primarily on building products. CSR retains a 25% effective interest in the Tomago aluminium smelter and periodically advances surplus industrial land to property developers.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

The portfolio of export-orientated mines is based in New South Wales, Australia. Salable coal production expanded from 10 million tonnes in fiscal 2014 to about 15 million tonnes in fiscal 2021, largely due to the ramp-up of Maules Creek and the expansion of the Narrabri mine. Equity output is expected to grow to approach 19 million tonnes by fiscal 2023. 

Whitehaven focused on increasing resources, reserves, and production through the boom. Maules Creek was developed despite a challenging external environment, and the subsequent ramp-up and improved coal prices from 2016 saw the weak balance sheet quickly repaired. Favourable coal prices are critical to generating excess long-term returns, but on this front we are circumspect. However, from near-break even profit levels in fiscal 2020, we see material longer-term earnings upside as coal prices recover.

Financial Strength:

The last traded price of the Whitehaven Coal is AUD 3.30 and the fair value as per the analysts is AUD 4.30, which shows that the share is undervalued.

Whitehaven’s financial position is relatively weak. The balance sheet deteriorated with the rapid decline in the coal price in fiscal 2020 and the payment of about AUD 300 million of dividends declared with the final result from fiscal 2019. The speed of the decline in the coal price, the production issues at Maules Creek and Narrabri, and the impact on unit cost drove a spike in net debt to about AUD 820 million at end 2020. At this level, Whitehaven is carrying more debt and leverage than most of its peers. The company had liquidity of about AUD 410 million at end 2020 with about AUD 100 million cash and AUD 310 million remaining undrawn on the company’s AUD 1 billion debt facility, which matures in July 2023.

Bulls Say:

• It is increasingly difficult for new coal mines to gain approval. This could dampen future supply to the benefit of existing coal producers with long life. 
• Whitehaven’s Maules Creek and Narrabri mines will likely provide a core of low-cost production, while Maules Creek brings a meaningful proportion of metallurgical coal. 
• The company is development rich with projects including the Vickery and Winchester South deposits. This underpins a strong pipeline of production growth, including some coking coal, for Whitehaven for years to come.

Company Profile:

Whitehaven Coal is a large Australian independent thermal and semisoft metallurgical coal miner with several mines in the Gunnedah Basin, New South Wales. It also owns the large undeveloped Vickery and Winchester South deposits in New South Wales and Queensland respectively. Coal is railed to the port of Newcastle for export to Asian customers. Equity salable coal production expanded from 10 million tonnes in fiscal 2014 to about 15 million tonnes in fiscal 2021, largely due to Maules Creek. The Maules Creek and Narrabri mines should be the key driver of an expansion in equity coal production to approach 19 million tonnes from fiscal 2023. Development of the Vickery deposit could see approximately 8 million tonnes of additional equity production from around 2025.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

We expect Exelon’s regulated utilities to drive all of our earnings growth through 2025. The segment’s four-year, $27 billion capital investment plan supports 7.5% rate base growth and 6%-8% utility earnings growth. 

Exelon’s generation continues to be a primary concern and the reason we value the company at a discount to its peer regulated utilities. As the largest nuclear power plant owner in the United States, Exelon has suffered as low natural gas prices slashed power prices. The company has shown its political clout, winning price subsidies in Illinois, New York, and New Jersey to keep some of its nuclear fleet running. Illinois recently approved clean energy legislation that will subsidize the Byron and Dresden nuclear facilities.

Illinois lawmakers passed energy legislation that would provide subsidies worth $700 million to Exelon’s Dresden and Byron nuclear plants. Gov. J.B. Pritzker has indicated he plans to sign the legislation, and Exelon has said it is in the process of refuelling both plants.

Financial Strength:

Management has done a good job paring down its nonutility debt. Only about 15% of Exelon’s consolidated debt is directly tied to its generation segment. As long as power markets remain relatively stable and Exelon maintains its investment-grade ratings, we don’t expect the company to have trouble refinancing its near-term maturities. Continued power market weakness could make refinancing more difficult and stress Exelon’s credit metrics.

Balance sheet is expected to remain sound and in line with regulatory requirements, supported by the company’s low revenue cyclicality. Exelon’s operating leverage is somewhat higher than its regulated utility peers’ due to its merchant generation unit.

Exelon’s dividend policy to pay out 70% of regulated earnings is appropriate, given the high quality and relatively stable nature of its regulated assets.

Bulls Say:

• Exelon’s proposed divestiture of its merchant generation unit would eliminate its earnings sensitivity to cyclical commodity prices that have dragged down returns recently. 
• The company’s regulated utilities have good growth investment opportunities that should support earnings and dividend growth. 
• The state subsidies that management has secured for a portion of its nuclear portfolio are a positive for shareholders

Company Profile:

Exelon serves approximately 10 million power and gas customers at its six regulated utilities in Illinois, Pennsylvania, Maryland, New Jersey, Delaware, and Washington, D.C. Exelon owns approximately 31 gigawatts of generation capacity throughout North America.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Annual refining capacity fell by half to 6.0 billion litres, about one third of company marketed volumes, when Kurnell closed. Kurnell refinery was shut in 2014 because of operational issues and unfavourable demand for the product mix. It was built to produce petrol, but the market has moved increasingly to diesel with advancing engine technology. Strong growth in transport fuels reflects favourable market attributes. Pandemics notwithstanding, volumes in the Australian liquid fuels market grow at close to growth rates in gross domestic product, with solid increases in diesel and jet fuel consumption offsetting a slow decline in petrol.

Ampol’s extensive network and comprehensive product offerings provide some competitive advantage. The closure of refining sees Ampol’s business rest largely on fuel distribution. In this space, it wrestles with expert competition in BP, Shell, and Mobil. Potential long-term threats include substitution of diesel for alternative fuels such as liquid natural gas, or LNG, and electricity. In the case of LNG in particular, Ampol is likely to participate in any shift via its logistics network and filling stations. Ampol maintains a market-leading 35% share of all transport fuels sold. Ampol substantially rests on its competitive supply chain now that Kurnell has been converted into an import terminal.

Financial Strength 

Ampol is proposing an NZD 3.78 per share cash offer for Z Energy via scheme of arrangement. Ampol intends to fund the acquisition in accordance with its existing capital allocation framework, including an adjusted net debt/EBITDA target of 2.0-2.5 times. It says it will use new debt facilities, proceeds from any divestments, and an equity issuance in the order of AUD 600 million. Ampol may have to sell-down some NZ assets to meet NZ competition guidelines. This could include its Gull network.Z had NZD 608 million net debt at end March 2021, net debt/EBITDA of 2.67 quite high versus Ampol’s AUD 735 million at end June 2021, but this in the context of a low growth company focused on yield. Ampol’s standalone leverage is conservative at 18.6% and annualised first half net debt/EBITDA is just 0.8.

Our fair value estimate for Ampol by 9% to AUD 31.00. The increase is in accord with the terms of a proposed merger and our prior stand-alone fair value estimates. Merger and acquisition activity continues at a frenetic pace in the Australasian fossil fuel space, coronavirus fragility and carbon concerns marking some as prey. The latest is apparently the fourth in a series of nonbinding offers from Ampol, including at NZD 3.35, NZD 3.50 and NZD 3.60 along the way. And there is logic to a merger– Ampol and Z have very similar business models. 

Z Energy’s board wouldn’t have opened the books if the chance of a deal proceeding was low. At NZD 3.78 Ampol will be getting Z Energy at a material 33% discount to our NZD 5.60 standalone fair value. This accounts for the 9% Ampol fair value uplift. On a stand-alone basis, our AUD 28.50 stand-alone fair value estimate for Ampol is unchanged. Ampol intends to fund the acquisition in accordance with its existing capital allocation framework, including an adjusted net debt/EBITDA target of 2.0-2.5 times. It says it will use new debt facilities, proceeds from any divestments, and an equity issuance in the order of AUD 600 million.

Bulls Say’s

• Group returns on invested capital improved materially with the closure of the high-cost Kurnell refinery and the
• modernisation of Lytton refinery. Quarantining of refinery losses and redirection of free cash flow to marketing and distribution drove the improvement.
• Dismantled refining leaves Ampol reliant on third parties for two thirds of its fuel requirement and removes an inbuilt hedge, albeit an unprofitable one in some prior years.
• Ampol wrestles with formidable competition in BP, Shell, and Mobil in the distribution and retail sector.

Company Profile 

Ampol (nee Caltex) is the largest and only Australian-listed petroleum refiner and distributor, with operations in all states and territories. It was a major international brand of Chevron’s until that 50% owner sold out in 2015. Caltex transitioned to Ampol branding due to Chevron terminating its licence to use the Caltex brand in Australia. Ampol has operated for more than 100 years. It owns and operates a refinery at Lytton in Brisbane, but closed Sydney’s Kurnell refinery to focus on the more profitable distribution/retail segment.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

• The share price has de-rated from a recent high by ~18% (which is valid), provides a buying opportunity in our view. 
• The acquisition of Lattice Energy provides a stable mix of producing assets. 
• The Company is currently on a 5-year capital expenditure program. The execution and delivery of this program could see upside risks to consensus estimates. 
• Favorable industry conditions on the east coast gas market over the long-term –i.e. tight supply could lead to higher gas prices.
• Strong balance sheet 
• Potential M&A activity. 

Key Risks

• Execution risk – Drilling and exploration risk. Unable to resolve the issue at Western Flank, leading to long-term downgrades to key estimates for the project.
• Commodity price risk – movement in oil & gas price will impact unconstructed / re-contracting volumes. 
• Regulatory risk – such as changes in tax regimes which adversely impact profitability. 
• M&A risk – value destructive acquisition in order to add growth assets.
• Financial risk – potentially deeply discounted equity rising to fund operating & exploration activities should debt markets tighten up due external macro factors. 
• Currency risk 

FY21 Results Highlights

NPAT of $317m impacted by $117m non-cash, pre-tax impairment Underlying NPAT of $363m. Underlying EBITDAX of $1,010m and underlying EBITDA of $953m, underpinned by favourable arbitral outcome for the carbon liability associated with a Kupe GSA. BPT retained a strong balance sheet with net debt of $48m, net gearing of 1.5% and liquidity of $402m at 30 June 2021. Management highlighted BPT is in net cash position as of 13 August 2021. The Board declared a final dividend of 1.0 cps, fully franked

Company Description

Beach Energy Ltd (BPT) is an oil & natural gas exploration and production company. BPT has both onshore and offshore operations in five basins (Perth, Cooper, Victoria, and Tasmania & NZ) across Australia and New Zealand. The Company is a key supplier of gas into the Australian east coast gas market. The Company also owns strategic oil and gas infrastructure (Moomba processing facility & Otway Gas Plan

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Demand for industrial gases is strongly correlated to industrial production. As such, organic revenue growth will largely depend on global economic conditions. Since Seifi Ghasemi was appointed CEO in 2014, new management has launched several initiatives that drastically improved Air Products’ profitability, raising EBITDA margins by over 1,500 basis points.  Air Products is poised for rapid growth over the next few years due to its 10-year capital allocation plan. The industrial gas firm aims to deploy over $30 billion during the decade from fiscal 2018 through fiscal 2027 and has already either spent or committed roughly $18 billion of that amount.

Financial Strength 

Management has indicated that maintaining an investment-grade credit rating is a priority. The company has used proceeds from its divestments of noncore operations (including the spin-off of its electronic materials division as Versum Materials in 2016 and the sale of its specialty additives business to Evonik in 2017) to reduce debt and fuel investment.The company held roughly $8 billion of gross debt as of Dec. 31, 2020, compared with $6.2 billion in cash and short-term investments. Liquidity includes an undrawn $2.5 billion multicurrency revolving credit facility, which is also used to support a commercial paper program. 

Narrow-moat rated Air Products reported mixed fiscal third quarter results, as its sales of $2,605 million beat the FactSet consensus estimate of $2,498 million, but adjusted EPS of $2.31 fell $0.05 short of expectations. The industrial gas firm also lowered the top end of its full-year fiscal 2021 adjusted EPS guidance range by a nickel, from $8.95-$9.10 to $8.95-$9.05. Fiscal third-quarter sales increased 26% year over year and 4% sequentially, driven by a continued recovery in the firm’s end markets.

Air Products unveiled its updated capital deployment plan and aims to deploy over $30 billion during the decade from fiscal 2018 through fiscal 2027. The company has already either spent or committed roughly $17.8 billion of that amount. Management said on the earnings call that of the remaining $12.2 billion, it expects to invest roughly $5 billion to support the existing business and the remainder in large growth projects, focusing on opportunities in gasification, green hydrogen, and carbon capture.

Bulls Say’s 

• Air Products is poised for rapid growth due to business opportunities that drive its ambitious $30 billion capital allocation plan.
• After acquiring Shell’s and GE’s gasification businesses in 2018, Air Products is the global leader in this segment and is poised to benefit from growing coal gasification in China and India.
• The company’s focus on on-site investments will result in a derisked portfolio with more stable cash flows.

Company Profile 

Since its founding in 1940, Air Products has become one of the leading industrial gas suppliers globally, with operations in 50 countries and 19,000 employees. The company is the largest supplier of hydrogen and helium in the world. It has a unique portfolio serving customers in a number of industries, including chemicals, energy, healthcare, metals, and electronics. Air Products generated $8.9 billion in revenue in fiscal 2020.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.