Pembina Pipeline Corp (PBA) — a Canadian midstream company — raised the mid-point of its 2022 EBITDA guidance range to CAD3.675 billion from the previous CAD3.625 billion; that follows a 28.2 percent boost in Q3 gross profit that fueled 13.8 percent higher EBITDA, notes Elliott Gue, editor of Energy and Income Advisor.

Those gains come despite a tepid volumes environment in Canada, as producers wait for new long-haul pipeline construction and export capability to unlock the country’s resources. Pembina’s Q3 system volumes were up just fractionally (0.4 percent), despite some substantial asset additions with both construction and successful acquisitions.

The company’s pipeline volumes were actually lower by -1.2 percent, with its “facilities” assets (processing, storage etc) reporting an improvement of 5.3 percent.

Volumes were hurt mainly because of the impact of the Ruby Pipeline bankruptcy and reduced oil sands flow from the Nipisi and Mitsui pipelines. But volumes and EBITDA should start to get a substantial lift next year from the company’ venture in western Canadian with KKR, leveraging the assets acquired from Energy Transfer LP (ET).

The company’s marketing/new ventures EBITDA rose by 65.1 percent from a year ago to reach 18.6 percent of the Q3 total. That windfall was applied to cut CAD540 million of debt during the quarter, while buying back CAD155 million worth of common stock. Debt is 97 percent fixed rates with average maturity of 13 years plus, limiting exposure to volatile interest rates for the next few years.

With the dividend drawn solely from fee-based assets with cash flow locked in under long-term contract, the package here is a secure franchise with a safe payout, even in a recession. There’s potential upside from a rebound in the Canadian dollar, since dividends and the shares are priced in that currency.

And though Pembina is currently the country’s third largest midstream, its still a potential takeover target with a market cap less than $20 billion. The stock is a buy up to $35 with a "Dream Buy" price of $28.

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