On Thursday, before markets opened, Gibson Energy (GEI.TO) delivered mixed second-quarter earnings results with EPS of C$0.11 in-line of our expectations and Street’s estimates, while adj. EBITDA of C$83 million derived to some extent lower than our C$86 million and C$87 million consensus, where C$3 million variance resulted from bit loss in terminals and environmental services, while all rest of segments performed well.
Company expanded its growth capital outlook by 10% to C$375 million for 2014 and a largely noteworthy 50% to C$375 million for 2015. However $130 million in current propane acquisitions underlines that company finds it comfortable having diversified service solutions, we too stress that 70% of the organic growth expenditure is from the elevated multiple, long run contracted terminal region. Furthermore, the 2015 budget does not incorporate likely growth of the Hardisty rail resource, which is mainly in reply to inward customer interest and while company anticipates more clarity could come in by end of the year.
We believe that marginal downside on bit EBITDA loss and re-establishing of marketing to regular to extraordinary on the increased capex growth and accretive propane merger and acquisition. Particularly, the two latest propane acquisitions for C$132 million should add C$20 million to C$25 million of annual EBITDA upside (sooner the synergies are gained); nonetheless, our EBITDA estimates are fairly unaffected as this hike is well offset by a more conservative standard expectation for marketing considering low volatility moving ahead (successfully annualizing second quarter results, however volume grows across its system should lead growth down the recent base), together with increased interest expense to some extent. In final outcome, we are decreasing our EPS estimates by 2%-4% in 2014 (C$1.03), 2015 (C$1.23) and 2016(C$1.35).
We reiterate our “Outperform” rating for company’s stock with 15% total return prospective on basis of C$37 DCF derivative price target, considering more traditional marketing expectation is likely offset by the accretive value of the propane acquisitions.