TransCanada Corp (TRP, Financial), Canada’s second-largest pipeline company with around 57,000 kilometers (35,500 miles) of pipelines under its purview, recently reported better-than-expected fourth-quarter profits, following the commencement of oil shipments on the southern leg of its $8bn Keystone XL pipeline project.
Net income grew to $366 million from $338 million in the prior-year quarter, translating to 65 cents per share compared to 59 cents per share in Q4 2013, beating expert estimates that had pegged the EPS for the fourth quarter at 63 cents a share. The company’s shares edged up 0.26% to $47.12 a share on the news.
Revenue up on the back of rise in oil shipments
Excluding one-time items, TransCanada logged in earnings of $0.58 per common share, with the company’s Q4 2014 revenue rising 12% to $2.1 billion from $1.87 billion a year ago. The company attributed the growth to its $3.05 billion worth of new assets that were commissioned in 2014, including an increase in oil shipments as the company began deliveries from Oklahoma to Texas via its Gulf Coast line. The Gulf Coast Line, part of the southern leg of the Keystone XL project, is among several projects that are expected to feed the TransCanada’s plan of doubling its dividend growth rate by 2017.
TransCanada’s net income attributable to common shares, including an after-tax gain of $6.5 million from the sale of INNERGY/Gas Pacifico, grew by $30.5 million for fourth quarter of 2014 compared to the same period in 2013. While TransCanada reported a 30% jump to $318 million in comparable Q4 earnings from the company’s cross-country Canadian Mainland pipeline that carries natural gas from Alberta to Ontario, comparable earnings from the company’s Keystone pipeline climbed 47% to $236 million. TransCanada, which expects an additional $12 billion worth of small-to-medium sized projects to be completed and commissioned by the end of 2017, has also taken steps towards solidifying the long-term returns from the company’s existing assets including the ANR and the Canadian Mainline projects.
The company also announced an 8% boost in its quarterly dividend from $0.39 per common share in the previous four quarters to $0.42 per common share for Q1 2015, which is equivalent to $1.67 per share on an annualized basis. This is the 15th successive year that the company has raised the dividend on its common shares.
Outlook for 2015
TransCanada, which is currently developing the $9.6 billion, 1.1 million-barrel-a-day Energy East line connecting oil sands in Alberta to export terminals and refineries in Eastern Canada, also announced plans to move ahead with it $482 million Upland pipeline between Saskatchewan and North Dakota. The Upland pipeline, which is likely to be commissioned in the year 2018, is expected to carry and connect around seventy thousand barrels per day with the Energy East line. The company further announced that it had not yet witnessed any impact on its new and proposed pipeline projects from declining crude prices.
While the company expects overall earnings in 2015 to be higher than 2014, there is likely to be a change in segment-wise earnings. In the Natural Gas Pipeline segment, the 2015-2030 Tolls and Tariff Application is likely to hit earnings from the Canadian Mainline project, the company foresees higher earnings from its U.S. and international gas pipelines owing to new long-term agreements for ANR. Earnings from the Liquid Pipelines segment are expected to be similar to the 2014 figures, with the company looking to further operational efficiencies and improve capacity. In the Energy segment, TransCanada foresees a dip in earnings from its Western Power division owing to changing market conditions, whereas the Eastern Power earnings are expected to be higher than the 2014 figures.
Final thoughts
TransCanada’s upbeat Q4 earnings report and the consequent announcement of raise in dividend for Q1 2015 has gone down well with investors. The company has maintained its track record of raising its dividend for common shares for 15 consequtive quarters. Moreover, the TransCanada stock has gained 18% over the last one year.
However, a lot hangs on the U.S. State Department’s approval of the compay’s ambitious Keystone XL project, which is under attack by environmentalists for posing a risk of oil spills while also holding the possibility of considerable increase in carbon dioxide emissions. The company will also be incurring a significant amount in terns of capital expenditure in 2015 in the race to get its many projects through to the finish line. Consequently, experts peg TransCanada shares at a "hold" for the short term. There are currently 708.7m outstanding shares of the company with a market cap of $33.5 billion.
